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February-July Session, 1924 


[App. 1--1924] 

Price, $1.00 

14-15 GEORGE V APPENDIX No. 1 A. 1924- 








February-July Session, 1924 


[App. 1--1924] 


14-15 GEORGE V, A. 192 
WEDNESDAY, May 14, 1924. 
Ordered,--That the said Committee be granted leave to sit while the House 
is in session. 
Clerk, House o] Commons. 

TUESDAY, May 20, 1924. 
Ordered,--That the name of Mr. Euler be substituted for that of Mr. 
Mitchell (resigned) on the Select Standing Committee on Banking and Com- 
Clerk, House o] Commons. 

TUESDAY, May 27, 1924. 
Ordered,--That the Minutes of Proceedings and Evidence taken before the 
Select Special Committee on Agricultural Conditions last session be referred to 
this Committee. 
Clerk, House o] Commons. 

THURSDAY, June 5. 1924. 
Ordered,--That the said Committee be instructed to lay on the table of the 
House as part of their sixth Report the minutes and proceedings of all their 
sittings during the present session prior to their adoption of the said Report. 
Clerk, House o] Commons. 

WEDNESDAY, June 11, 1924. 
Ordered,--That the interim Report of the Royal Commission respecting 
the :Home Bank be referred to the Select Standing Committee on Banking and 
Clerk, House o] Commons. 

14-15 GEORGE V, A. 1924 
(Presented, Friday, June 20, 1924. See pages 423, 424, 425, Votes and 
Proceedings. Concurrence moved, concurred in, Monday, June 23, 1924. See 
page 432, Votes and Proceedings.) 

Your Committee have had under consideration the Order of Reference from 
this Honourable House, dated 31st March, 1924, which reads as follows:-- 
" That, in the opinion of this House, in view of the failure of the 
Home Bank, and of the fact that official prosecutions and inquiries 
have been instituted, including the Royal Commission which has been 
appointed to investigate the facts alleged in the petition represented by 
the depositors of the Bank and the affairs of the Bank generally; and 
considering that the evidence received and to be taken before the several 
tribunals will be available for consideration, the Select Standing Com- 
mittee on Banking and Commerce should be instructed to consider the 
provisions of the Bank Act with a view to recommending such amend- 
ments to the Act as will better protect the interests of depositors gener- 
ally and will prevent similar occurrences in the future; and also to 
consider the report of the Royal Commission in its bearing upon these 
matters and with respect to the possibility of saving the Home Bank 
depositors from loss," be referred to the Select Standing Committee on 
Banking and Commerce for such action as the Committee may deem 
And also the Order of Reference dated llth June, 1924, reading as follows:- 
" That the Interim Report of the Royal Commission respecting the 
Home Bank be referred to the Select Standing Committee on Banking 
and Commerce." 
Your Committee have sat from time to time, and have studied the Interim 
Report on the Home Bank submitted by Mr. Chief Justice McKeown and the 
evidence therein referred to. 
Your Committee consider that the facts therein brought out and the 
evidence therein referred to clearly establish that the depositors of the Home 
Bank have no claim under the law of the land for compensation by the country 
on account of any loss they may suffer by reason of the failure of the Home 
But your Committee are also of the opinion that, in view of the representa- 
tions made to the Department of Finance in the years 1916 and 1918, the 
Government of the time could have made in 1916 and in 1918 an effective audit 
under Section 56A of the Bank Act, and if such an effective audit or thorough 
investigation into the Bank's affairs had been made it would have resulted:-- 
1. In the immediate liquidation of the bank, or 
2. Its amalgamation with another bank, and that the effect would have 
been, no loss to the depositors in 1916 or 1918. 
Your Committee have studied the evidence given before the Royal Com- 
mission by Sir Thomas White, who was then Minister of Finance, and particu- 
larly his statements: "I would never think ot putting in a special auditor in a 
bank and taking chances, especially at a time like that, of closing the bank" 
(page 345) ; and further: " Under no circumstances would I have allowed a bank 
to fail during the period in question. I had many difficult and dangerous finan- 
cial situations to deal with during the war. At its outbreak, in view of the 
panic which prevailed, the Government, at my instance, placed itself behind 
the banks of Canada and gave public assurance that it would loan them such 
eums as they might require to meet the conditions of the war, and would take 

14-15 GEORGE V, A. 1924 
action may be taken upon them, is not for me to say. While I realize that I 
have permission to express an opinion on the result of the investigation and the 
evidence taken, I recognize that the responsibility for any action thereon really 
lies elsewhere, and those who carry that burden should, I think, approach their 
task unaffected by the expression of any opinion on my part. My duty, as I 
see it, is simply to put/hem in possession of definite answers to the questions 
submitted, as best I may. I have been urged by certain of the counsel to say 
that in my opinion compassionate allowance should be made to the depositors 
who have suffered loss, and also to pronounce what would amount to a finding 
of negligence on the part of some responsible for the administration of the 
Department of Finance in its oversight of the bank. While my right to dis- 
cuss the discretionary acts of a minister of the Crown, where no dishonesty is 
alleged, has been sharply challenged by other counsel, on the ground that the 
iurisdiction therein abides with Parliament itself, nevertheless I have been 
further invited to express an opinion upon the diligence and honesty of adminis- 
trative acts. But in strictly confining myself to answering the questions set 
out in the Orders in Council, I am constrained to lay aside any inquiry into 
matters suggested immediately above and to refrain from comments upon facts, 
concerning which various counsel have asked that pronouncement may be made, 
especially regarding the conduct of ministers of the Crown responsible for the 
administration of the department immediately involved. 
While it would, I think, be impossible for one to follow the c-idence and dis- 
cussion without forming an opinion, and perhaps a strong opinion, upon the 
questions so raised, yet the expression of such opinion, to my mind, would serve 
no useful purpose, but rather cloud the direct issues to which I am commanded 
to give attention. It may be that other matters related to the Home Bank will 
be explored later, as coming within Order in Council number 412, directing the 
commissioner to investigate:- 
" the affairs of the said bank during the whole inte.,al between the 
issue of the bank's charter and the failure of the said bank " etc., 
but in this interim report I am confining myself solely to the task of finding 
answers to .the questions set out in the Order in Council number 306, which 
questions are as follows:- 
" 1. Whether, in the years 1915, 1916 and 1918, representations were 
made to the Department of Finance of the Dominion of Canada respecting 
the condition of the Home Bank of Canada, and, if so, what representa- 
tions were so made. 
"2. Whether, if such representations were made, a state of affairs 
was revealed concerning the condition of the said bank such as would 
have justified an investigation under the powers conferred upon the Min- 
ister of Finance by section 56A of the Bank Act. 
" 3. What action if any was taken by the then Minister of Finance 
upon such representations as may have been made. 
" 4. What effect would an audit under section 56A of the Bank Act 
if made in 1915, 1916 and 1918 have had upon the conduct of the affairs 
of the said bank and upon the position of the present depositors. 
" 5. What was the financial condition of the said Home Bank of 
Canada in the years 1915, 1916 and 1918, respectively, and what steps, if 
any, could have been taken by the Government to save the situation." 
Adhering to the course indicated above and in compliance with what I con- 
sider to be the directions of the commission in this regard, I desire to state 
specifically my answers to the questions above set out. 



meetings, especially as to certain accounts, one of which on the first day of 
meeting was reported at the figure $1,100,000, but on the second day an error 
was admitted to have been made, and the amount was raised to $1,500,000, and 
on the third day it was placed at $1,780,000; and concerning which loan it 
appears that even the largest figure given was too small, for at the meeting on 
the 30th of the following month, it was disclosed that the amount involved was 
nearly two millions of dollars. They also learned that the general manager was 
indebted to the bank in a sum first reported as $35,000, and which was after- 
wards disclosed to be $76,000, and the like situation existed regarding other 
customers (ex. 10, p. 24). It was further represented to the minister that 
although they had urged an immediate inspection of the Toronto office, and that 
the report be ready for the next annual general meeting, it was not ready at that 
time, and the annual report of the bank had been sent to Ottawa without the 
western directors knowing of its contents. Also that they refused to acknowledge 
the validity of the election of Messrs. Barnard and Haney to the board of direc- 
tors, in the place of Messrs. Gooderham and McNaught, who had resigned, and 
the western directors notified the manager that they held themselves free to 
contest the valid:ty of these elections (ex. 9, p. 23). Another matter of com- 
plaint was that at the December meeting a resolution had been submitted and 
approved to the effect that a committee be appointed consisting of the assistant 
general manager and two others to carry on the affairs of the bank, and to 
specially pass upon all credits and make every possible effort to collect all 
overdue loans, and submit the earliest possible statement showing the present 
condition of the bank, with recommendations, which resolution was not pressed 
to its passage as the general manager was at that time out of the country in 
ill-health, but it had been agreed that this course would be taken, but the agree- 
ment was ignored and nothing done pursuant to these plain directions (ex. 10, 
p. 25). This communication was of a general nature, and in that sense supple- 
mentary to the particulars set out in the other two accompanying memoranda 
referred to below, but all the matters above noted were contained therein, and 
in accompanying exhibits, and thereby brought to the attention of the Minister 
of Finance. 
The memorandum filed as exhibit number 2 is of the same date and has 
referen6e to the loan made by the bank to the Prudential Trust Company. The 
facts laid before the minister in this document showed that the bank had parted 
with $500.000 in a transaction involving the Prudential Trust Company and th 
New Orleans Southern and Grand Isle Railway Company, which was explained 
by the general manager in a communication to Mr. Crerar, under date of Decem- 
ber 24, 1915 (ex. 31, p. 53), part of which reads:-- 

"James Mason to T. A. Crcrar 
" Messrs. Warren, Bristol and Morden were the promoter. of the 
reorganized New Orleans Southern and Grand Isle Railway Compan.v. and 
as such made application t,o the Prudential Trust Company, Limited, for a 
loan of $500.000, which the trust company agreed to make, provided 
the bank would advance to the trust company the necessary funds. It 
was afterwards discovered by the solicitor for the trust company that 
under its charter it could not make the ad-ance, but could accept the 
funds from the bank for investment by way of loan to the railway com- 
pany and that the trust company could guarantee repayment to the ank-- 
there was no connection between Warren, Bristol and Morden and the 
banktheir dealings being direct with the trust company." 
There is a feature of this loan upoa which I desire to make no comment, 
but feel it necessary to state, and that is, that apparently, preliminary to the 

74-15 GEORGE V, A. 1924 
loan being made by the bank, a like sum of $500,000, being trst funds of one 
of the provinces, then in the hands of the Prudential Trust Company, was 
deposited in the Home Bank. It was considered by certain of the directors that 
in some way these funds would be security for the loan to the trust company, 
but obviously such could not be the case, and on reference to the bank's solicitor, 
advice to that effect was obtained. The security taken for this loan was a note 
signed by the Prudential Trust Company in favour of the Home Bank of Canada, 
and $750,000 of bonds of the railway company as collateral security. Now this 
loan represented a very large proportion of tim bank's capital, and the western 
directors whose amounts for western accommodation were being curtailed, were 
unsparing in their criticism of the transaction. The exhibits show a great deal 
of activity concerning this loan; the trust, company made no effort to repay it, 
and the same may be said of the railway company. 
Their third communication to the minister (ex. 3, p. 15), deals with a loan 
to C. A. Barnard, who had become a director of thc bank, and concerning whose 
election the western directors protested, as above referred to. It sets out that 
from the report of the inspector of the Toronto office made in June, 1915, it 
appears that C. A. Barnard was indebted to the bank in the sum of $394,000. 
and that 2,622 shares of Home Bank stock were held in the name of Barnard 
and Pcllatt in trust.. The inspector pointed out that there was no trust deed 
held concerning these shares, and that they would have to realize about 125 per 
cent to enable the bank to avoid a loss. It will be shown a little later that in 
ad'dition to these three large amounts other individuals and companies were 
shown to be indebted to the bank in snms wholly disproportionate to the bank's 
assets, but in their first communications the western directors called the atten- 
tion of the minister to these three large accounts then representing more than 
the whole paid up capital of the institution. They complained as to the Barnard 
loan that they never could get any satisfactory, explanation of the transaction; 
that it had ben explained by Col. Mason at the November meeting in 1915 that 
it was connected with the taking over of the Banque Internationale, but how it 
came to be made or what its object was, complainants say they could not 
ascertain; neither could they understand, nor were they informed, as to the 
relationship of the bank shares to the loan in question; and by the submission 
of these three accounts and others mentioned in the exhibits, hey brought the 
atention of the department to the condition of the bank. I do not conceive it 
to be my duty to enter into detailed history or explanation concerning these 
loans; I am answering the question as to what the representations were, and it 
is apparent that the existence of three accounts, viz: the Prudential Trust Com- 
pany, C. A. Barnard, and the A. C. Frost Company, involving at that time the 
withdrawal from circulation of over two and a half millions of dollars of the 
bank's funds (ex. 4, p. 16, and 35 p. 59), upon which no interest was being paid, 
and to sone of which addition was being made from time to time, was relied on 
bv the western directors in their complaint against the bank management. 
"lhev further showed that by a statement placed before the board of directors 
at t]e meeting in September, 1915 (ex. 4, p. 17), the BarnaM account and the 
Prudential Trust Company account, and other accounts mentioned below, had 
been increased from December 31, 1914, and Augus.t 31, 1915, in the amount of 
$192.849.30. Increases involved in the A. C. Frost Company account and the 
Pellatt & Pellatt account were responsible for the greater part of this sum and 
except incidentally in the statement of increases mentioned above, the indebted- 
nes.s of the last named firm was not placed before the minister in the year 1916. 
This branch of question number 1 is two-fold:- 
First, as to what representations were made in 1916; and, 
Second. what representations were made in 1918. Coming now to the repre- 
sentations made in the year 1918, it will be observed that everything that was 
placed before the department in 1916 was still available, as well as an addi- 

"Q. As a result of the memorandum and other documents filed with 
you by :Air. Fisher, you proceeded under section 113 of the Bank Act 
to ask for a report?--A. I did. 
Q. You also decided that it would iustify an investigation under 
section 56A?--A. I asked the auditor to make a report to me. 
Q. That is under that section?--A. Yes, 56A, without doubt I 
proceeded under the Bank Act. 
Q. Well, you might an.swer my question, you felt yourself justified 
in asking for a report under section 56A of the Bank Aet?--A. Yes, un- 
doubtedly, and calling on the board and on the auditor. 
Q. Did you call on the auditor for a report under section 56A of 
the Act?--A. Right." 
It will be remembered that in his argument Sir Thomas White contended, 
with reference to the evidence above quoted, that in answering these questions 
as he did, he was not committing himself to the view that an outside auditor 
should have been called in, but, that he was confining his testimony to an assent 
on his part that the auditor appointed by the sharclmlders should make report, 
and he said that if the questions had been put to him plainly as to his being 
iustified in calling in an outside auditor, he would have an.wered them in the 
negative, for the reason that, in his opinion, the conditions prevailing in the 
bank at that tim wouhl have meant that calling in an outside auditor would 
have nccessit,ted closing its doors. 
The powers given under section 56A of the Bank Act, as it stood in 1916, 
were not confined to the employment of an outside auditor, or to the employ- 
meat of the regular bank auditor either. The provision was to the effect that 
the minister could direct any auditor "to examine and enquire especially into 
any of the affairs or business of the bank", and the argument was, that an 
auditor whollv detached from the bank should have been selected, whereas the 
minister, in tle exercise of his discretion, for the reasons indicated, thought best 
to appoint Mr. Jones, the regular auditor of the bank. There is no necessity 
for the expression of any opinion upon my part as to whether the minister 
should have engaged an inside or an outside auditor for this work; either one" 
could be appointed by the minister under that section according to his discre- 
tion and the evidence above quoted shows that the minister exercised his dis- 
cretion under the section in question by the appointment of Mr. Jones. It 
must therefore follow that to his mind the conditions prevailing justified the 
investigation under the authority of section 56A of the Bank Act. altogether 
apart from the question whether it should be made by one class of auditor or 
the other. The enquiry up to this point, has. I think, brought us to the con- 
clusion that the reason that an outside auditor was not appointed was that 
the minister feared such action would result in the collapse of the bank. It is 
not said by anyone that the exercis of the powers given by section 56A were 
not or should not, have been called into action. The argument put forward 
by counsel for the shareholders was, that such discretion as the minister saw 
fit to exercise was really useless. The statement that an outside auditor would 
have closed the bank, throws some light upon that contention. 
The letters which passed between Sir Thomas White and the president 
of the bank and Mr. Lash and others, show that it was with considerable re- 
luctance that the minister relinquished his first idea of calling the attention 
of the Bankers' Association to the condition of the bank, but that he was moved 
thereto by representations of a betterment of condition by change of manage- 
ment, and by statements made by Mr. Lash, in whom. it is unnecessary to say, 
he reposed a very great deal of confidence; but inasmuch as it is admitted that 
these representations rsulted in calling upon the auditor of the bank under 

14-15 GEORGE V, A. 1924 
section 56A, it is hardly necessary for me to amplify reasons which have led me 
to the conclusion that the state of affairs revealed by the representations made, 
justified an investigation under the powers conferred upon the minister by 
section 56A of the Bank Act, for vhat the minieter did shows it. That he 
considered the situation to be a serious one, is evidenced by his letter to Gen- 
eral Mason, then the president of the bank, written under date of January 24th, 
1916, (ex. 43, p. 75}, immediately af, ter receiving the complaint of the western 
directors through Mr. Fisher. It will be remembered that these representa- 
tio.. and complaints were not made by outside people, or by individuals to 
whom some personal grievance or antagonism towards the bank could be at- 
tributed; they emanated from persons bearing the responsibility of the insti- 
tution, being directors, entrusted by their shareholders with seeing that an 
honest management prevailcd. In this letter the minister said that he con- 
sidered it his duty to ask for full particulars, both from the board and from 
the auditor, as to (he accoun.ts of the Prudential Trust Company, Pellatt and 
Pellatt, and A. C. Frost and Co., with a detailed statement of securities held. 
In an.wer to a letter receivcd from the president, asking the minister if he 
would have the thirty days referred to in section 113 of the Bank Act to make 
such return, the minister advised him that the matter was of so serious a char- 
acter that he thought it advisable that the reply should be completed and 
forwardcd at as early a date as possible. 
In writing to Mr. Fisher upon the subject, (ex. 54. p. 86) Sir Thomas further 
"You make certain definite explicit charges, which I conceive it to 
be my duty to investigate." 
This latter sentence describes the effect produced upon the minister by the 
The evidence discloses that after the receipt by Sir Thomas Whie of the 
communications from the western directors, attempts were made to change the 
management of the bank so as to meet with the approval of all the directors, 
and such attempts were ve]l known to the Minister of Finance, being conducted 
mainly through the late Mr. Z. A. Lash, K.C., who had personal interviews and 
carried on correspondence with the minister concerning the matter. But, 
notwithstanding the desirability of having the whole directorate in accord, Sir 
Thomas White did not consider that to be a solution of the difficulty, and defined 
his position in a letter of February 17th, 1916, written to hir. Lash in these 
words: {Ex. 71, p. 162.) 

"qir Tlw.mas White to Z. A. Lash. 
"Re Home Bank o[ Canada: 
"D^a Ma. L^sH:--I have your private letter of the 14th instant 
and think I must ask you for the statements to which you refer. In 
themselves they may disclose a situation which apart altogether from the 
question of other accounts would cause me to bring the affairs of the 
bank to the attention of the Bankers' Association through its president 
here. The position is that I have been made aware by the Winnipeg 
directors of a certain condition which is most disturbing. It does not 
appear to me that I would be justified in staying enquiry because the 
Winnipeg directors may ask me to suspend action. The real question is 
whether the bank, having regard to the condition which will be disclosed 
by the statements should be allowed to continue business with the public. 
I shall be glad, therefore, if you will send me those statements. It would 

not appear to me necessary that you should specially come down about the 
matter but I leave this to your discretion. I shall desire, of course, to 
give the reorganized board and management every opportunity to restore 
the bank's position, but this statement must be taken subject to the 
overriding consideration of the public interest." 
This was the view taken of the matter by the minister both in 1916, and 
two years later, when his attention was again drawn to it by Mr. Machaffie's 
letter. The serious character of the representations nmde therein was appreciated 
by the minister, as shown by his letter to Mr. Lash under date of September 4th 
1918. He enclosed a copy of the Machaffie letter and asked Mr. Lash to take 
the matter up vith the board of directors, and expressed himself as follows:-- 
{ex. 90, p..179). 
"Sir Thomas White to Mr. Lash. 
"I regard the matter as of the utmost public importance, and it is 
nay intention to have a thorough investigation made through .the Bankers' 
Association or otherwise. Before taking this step, however, I wish to have 
a reply from Mr. Hancy and his board." 
All I am at present directing my attention to is, whether or not the repre- 
sentations made would have justified an investigation under section 56A of the 
Bank Act. From the testimony above quoted, and from the letters, extracts 
from which are set out above, it is very apparent to me that the representations 
made were regarded, on all sides, as of a character which would justify such 
investigation, and, I thoroughly agree with that view. 
Answer to question 2:- 
The condition of the bank, as revealed by the representations made, 
was such as to justify an investigation under the powers conferred upon 
the Minister of Finance by section 56A of the Bank Act. 
Question number 3 reads as follows:-- 
"What action, if any, was taken by the then Minister of Finance, upon 
such representations as may have been made." 
It is apparent that the answer to this must be shown by the communications 
which passed between the minister and the bank and parties in interest. They 
disclose in the first place, a lively apprehension on the part of the minister con- 
cerning the position of the bank, and a desire to keep it upon its feet. 
Confining myself first to the year 1916, it is evident that the minister acted 
promptly on the receipt of the three memoranda from the western directors, for 
on the 24th of January, 1916, he addressed a letter to the president of the bank, 
detailing the information submitted to him by Mr. Fisher and the complaints 
made. After referring to the accounts of the Prudential Trust Co., Pellatt & 
Pellatt, and the A. C. Frost Co., the safety and security of which were challenged, 
the minister concludes his communication to the president of the bank as 
follows (ex. 43 p. 
"Sir Thomas White to James Mason. 
"I shall be obliged if you will write me officially, setting out concisely 
the history of these loans and indicating the amounts of unpaid interest 
(if any) in such accounts. I also request a detailed statement as to the 
securities held as collateral and the valuation placed upon them by your 
bank. Apart altogether from the question of security, the loans appear 
to me to be exceedingly large, having regard to the capital of your bank 

picturing a condition of affairs with reference to tile bank, vhich, if true, 
would have disproved the necessity of action being taken. It is in the form 
of a resolution of the board of di.rectors, dealing with all the matters complained 
of by Mr. Machaffie, and signed by the president. The regrettable thing about 
it is that in very many respects it was not true. But its receipt seems to have 
satisfied the minister that the proper course to be taken under the circumstances 
was to allow the bank officials to work out the situation. Jdaving said so 
much about Mr. Machaffie's letter, it is right, I think, for me to say, that its 
force in anybody's mind would very naturally be broken by the fact that on 
the 25th of February, 1918, Mr. Machae had drafted a letter to the 
Minister of Finance (ex-135-p-390) in which he made representations con- 
cerning the Pellatt account, the New Orleans account, and the Frost account, 
commenting adversely upon them, and saying that there were numerous 
other accounts in a precarious condition, and sharply criticizing the policy of 
the president, Mr. Haney. This letter was not sent to the Minister of Finance, 
but a copy of it was forwarded to the ttome Bank. (ex-146-p-402). Mr. 
Machaffie subsequently retracted all these statements in a letter to the bank, 
admitting that his information was inaccurate and incomplete, and that his 
first letter would have conveyed a wrong impression as to the condition of the 
bank and the conduct of its affairs. Now the minister was acquainted with 
the fact of this withdrawal, and that the reason 5Ir. 5Iachaffie had retracted 
these statements was, that he might procure a settlement of his claim against 
the bank. If the accuracy of the information concerning the banks' affairs 
had depended upon Mr. Machaffie's representations, while perhaps it would 
be too strong to say that no attention whatever should have been paid to him, 
yet the fact remains that he had retracted them under circumstances that 
would very materially weaken them, and would also present their author in a 
wry unfavourable light. If it were a question between Mr. Machaffie and 
the officials of the bank, backed in their statement by Mr. Lash, no one would 
expect otherwise than that Mr. Machaffie's statements would be ignored. In 
response to the minister's call for a report upon the matters, there was submitted 
to him under date of 29th October, 1918, a lengthy statement signed by the 
president of the bank, in the form of a report unanimously adopted by the 
board, instructing the president to forward a copy to Mr. Lash, and with a 
direction to have the same forwarded to the minister. (ex-96-p-182). The 
report made reference to what was done in 1916, and tile changes made since 
that time in the management of the bank, discussed the accounts which had 
given so much trouble, and reported favourably on the British Columbia 
account, and the New Orleans account; it denied tha, t any dividends had been 
paid out of capita.l, and asserted that the profits of the bank actually earned had 
been sufficient to warrant the payment of the dividends; it set out the net profits 
for the years 1917 and 1918, and controverted Mr. Machaffie's statements 
about the shipbuilding enterprise, on which he had commented unfavourably; 
it assured the minister that the position of the bank had been steadily growing 
stronger, giving figures of its growth comprising the years 1917 and 1918, and at 
great length purported to set out the improved position of the institution. It 
was a report of such a character as to set at rest the mind of anyone who 
believed it, and apparently was written with that end in view. Upon its 
receipt the minister apparently was convinced that there 'as no necessity for 
ordering any further investigation. It 'as so drawn as to raise an issue 
between Mr. Machaffie and the president and directors of the bank, thereby 
clouding the real question. 

14-15 GEORGE V, A. 1924 
In answer to this I may say I am taking it for granted that such audit would 
have been thorough and effective, and as observed above, I think the result 
would have been either to close the bank altogether, or put it upon a firm founda- 
tion as an integral part of another banking institution, since, for the reasons above 
noted, I do not think it could have had further independent existence. In the 
light of this supposition, it is obvious that as far as the year 1916 is concerned, 
such audit would have saved the situation for the then depositors, for although 
the capital and reserve had largely, if not wholly, disappeared, yet despite the 
loss thus made, there was still left a fairly balanced account, according to the 
testimony given by Mr. Edwards. 
There is no evidence as to what number of those who are referred to in the 
question as " present depositors," occupied that position in 1916 and 1918; but 
I think it is clear, as regards those who were depositors in the first named year, 
that if either of the aforegoing remedies had been applied, their accounts would 
have been met in full from the then resources of the bank, backed by the 
double liability of the shareholders, and it is this last asset which might have 
saved the situation for the depositors in the year 1918. 
It is my duty to specifically inquire into the financial condition of the 
bank during the years 1916 and 1918 under the next succeeding question, and 
the result of that inquiry is closely bound up in the answer to the present one; 
but my finding on tbi branch of question 4 is that an effective audit in 1916 
would have resulted in action which would have saved the depositors from 
loss. While, because of lack of evidence on which to base a conclusion, it is 
impossible to speak with as much certainty as regards the year 1918. the prob- 
ability is that the same result would have followed had the audit been made and 
action taken in that year. 

Answer to question : 
For the reasons above set out. I think an effective audit under sec- 
tion 56A of the Bank Act made in 1916 or 1918, would have resulted, as 
far as concerns the conduc4 of the bank's affairs, in either:-- 
(a) Liquidation immed.iately following such audit, or, 
(b) Amalgamation with another bank. 
And the effect of such audit upon the position of the present 
depositors :- 
If made in 1916 the present depositors would have suffered no loss. 
If made in 1918, I do not think any loss would have fallen upon 

Question number 5 reads as follows:- 
" What was the financial condition of the said Home Bank of Canada 
in the years 1915, 1916 and 1918 respectively, and what steps, if any, 
could have been taken by the Government to save the situation?" 
The returns to the Government for 1916 show (ex. 170, p. 495) that the 
paid-up capital of the bank was $1,946.639: the reserve, $300,000; the deposits, 
$10,028,224" the total liabilities were $18,722,963; and the total assets 
$21,030fi53 Upon this showing a dividend of five per cent was declared and 
paid. The foregoing figures indicate an excess of assets over liabilities of 
$2,307,390, which represents what the officials of the bank reported to the 
Government in that year as to the financial condition of the Home Bank of 
Canada. The expert accountants, hr. Clarkson and Mr. Edwards, who testified 
before the commission, were undoubtedly best equipped to find the answer to 
his question. Whatever lack of unanimity there is in the opinions expressed 

14-15 GEORGE V, A. 1924 
selves, which rendered it necessary to capitalize the interest, was a most 
disturbing circumstance apart from the question of securities held for them. 
The effect of a bank passing a dividend is too well known to require comment. 
Conditions may be imagined in which directors would wisely determine it to 
be better to pay the ordinary dividend, even though the profits were unliquid, 
as in the case of this bank; )ut, before another year should elapse, unquestion- 
ably steps should be taken to force the l_quida{ion of accounts rendering that 
course necessary, otherwise the result would be as in the present instance. 
Also, there is always an existing danger that for some reason or other a 
run upon a bank's funds may take place for which a volume of ready money is 
necessary to tide over the situation. Whether any cause exists iust{fying such 
action is beside the point. It does occur from time to time that depositors 
become alarmed, frequently for no valid reason, and in consequence of such 
alarm demand their money. No bank should lose sight of the possibility of 
such an incident taking place, and be prepared to meet it. From that point 
of view it is unnecessary to argue that these accounts then carried by the Home 
Bank were altogether incomp,atible with safety, and I think that any competent 
auditor would have felt compelled to so report. Here again it will be per- 
ceived that this has no direct bearing upon the sufficiency of the security for 
the principal and interest of the loan, but the existence of these large loans 
was, in my opinion, wholly contrary to sound banking principles, for the two 
reasons briefly outlined above, and therefore that they created a very dangerous 
condition for the bank. Now for these reasons, rather than from the 
comparison of assets and liabilities, I think a competent auditor, viewing the 
situation in 1916, would have felt compelled to report an extremely dangerous 
situation in connection with the bank, for it was apparent that dividends wer 
being paid out of interest which bad been capitalized; in other words, from 
earnings which were not available, and he would have been confronted by the 
ominous fact that the amount of intere.t so capitalized and taken into profits 
then amaunted to much more than the whole capital and reserve of the bank. 
He would have seen that during the year 1915, although a profit of $163,900 
was shown, the actual state of afairs was that there had been taken into 
profits uncollected interest on four accounts to an amount exceeding $275,000; 
(p. 270) that in the year 1916, in which a profit of $133,406 was shown, un- 
collected interest to the amount of $210,000 (p. 271} had been put to profit 
account. :Now the necessity of taking these uncollected annual anmunts into 
profit and loss in order to declare a dividend, would have given to an auditor 
nmst serious concern, apart altogether from the question whether the security 
available for each individual account could have stood the strain of the addi- 
tional interest as well as the principal which it professed to guarantee. No 
doubt an auditor would have been very much embarrassed by finding these 
large accounts in the condition in which they were, and must have reported 
them with such comments as in his iudgment were necessary bearing upon 
the question of security, but apart from their safety from that standpoiat, the 
fact that by capitalizing the interest of these accounts they were absorbing 
more money than the bank was making year by year, would convince him 
a very grave situation existed. I have illustrated the situation with refer- 
ence to 1916 by a reference to the accounts above named, but other accounts 
were in a similar condition, and the combined effect oJ all these matters were 
danger signals of the most alarming nature. 
For the reasons suggested above, I cannot satisfactorily work out an answer 
to this question from a comparison of assets and liabilities. I think it must 
have been as a result of looking at the matter in .this light, on the part of the 
late Mr. Z. A. Lash. K.C.. that as early as February, 1916, he wrote to Sir. 

Fisher, K.C., of Winnipeg (ex. 132, p. 292) the letter previously set out, in part,, 
in my answer to question three, wherein he expressed doubt as to the possibility 
of the bank continuing in business, because, as he thercin said:-- 

" Z. A. Lash to James Fishcr. 

" The amount locked up indefinitely in four large accounts, is prob- 
ably three times the paid-up capital and more than half the total deposits." 

And he also alluded to the danger of even a slight run upon the bank. 

Having regard to the condition of the bank in the years in question, from a 
comparison of the assets and liabilitics, Mr. Edwards has testified as a result of 
his investigations that the assets of the bank in the ycar 1916 should have been 
reduced by the sum of three millions of dollars thereby lcaving the liabilities and 
assets about even, thus assuring the depositors of the safety of their money, and 
that the entire capital and rest had disappeared {p. 515). In arriving at these 
figures Mr. Edwards put a valuation upon the asscts, as i.t would be necessary. 
for him to do, and while that is easily donc at prescnt, yct from the standpoint 
of the information available in 1916, I cannot say that it would have appeared 
so clearly to me at that time. 
Mr. Clarkson, one of the liquidators, spoke very guardedly as to the exact 
position of the bank in 1916, but remarked {p. 283):-- 

"He must have felt that the bank was not earning profits sufficient 
to continue payment of dividends without capitalizing interest on accounts 
which were in jeopardy or at least in deep water; and that being the case, 
the situation must have appealed to him as a serious situation." 

And further says (p. 287) :-- 

" There were a great many danger signs and the revenue situation 
was one of them." 

Down to May, 1916, the interest capitalized on the A. C. Frost & Co. account 
was estimated by Mr. Edwards at $535,000 (p. 540), and it may not be out 
of place to say that until the date of failure interest had been capitalized to the 
extent of over two millions of dollars. 
The financial condition of the bank in the year 1918 when the attention 
of the minister was drawn to it a second time, had become more serious, although 
returns to the government for that year gave no cause for apprehension. The 
returns showed {ex. 170, p. 495) paid-up capital to have slightly increased, it 
then being $1,947,635. Reserve stood at the same figure, viz., $300,000. The 
deposits showed almost five million dollars increase, being $14,988,422. The 
total liabilities were $25,842,635, and the assets $28,270,766. From all of which 
it appeared, that if the assets were realizable, the bank was, from that stand- 
point, on safe footing. But an examination of the books would have shown-- 
according to Mr. Edwards' testimony--that the accumulated and unpaid interest 
for the years 1916, 1917 and 1918 amounted to $676,000 (p. 509), which illus- 
trates in a startling way how dangerous these frozen accounts were. Such 
examination would also have shown that in 1917 a profit of $142,900 was shown 
in the bank's statement, but that in that year interest to the extent of $205,000 
was capitalized and never collected {p. 271) ; that the earnings of the bank for 
1918 were $167,157 which was the most satisfactory showing for a long while, 
but as a matter of fact the annual statement represented the bank to have mad 
$228,963 in that year (p. 271). 

1,,--15 GEORGE V, A. 1924 
After the receipt of Mr. Machaffie's letter the minister reverted to his deter- 
mination to refer the matter to the Canadian Bankers' Association, but for the 
reasons which have been duly detailed in answer to question 3, he was persuaded 
not to do so. 
As to what further loss in capital had taken place between 1916 and 1918, 
it is difficult to form a conclusion. That some such impairment had taken place 
within that period is certain, although no details of amount are furnished in 
the evidence. Two yearly dividends amounting to over $190,000 had in the 
meantime been paid. 
The concluding part of this question asks:- 
" What steps, if any, could have been taken by the Government to 
save the situation." 
In considering what the Government might have been able to do to that 
end in the years above mentioned, attention is directed to the probability of 
assistance from other financial institutions. By its continual supervision of 
banking matters and from the fact that there must be a renewal of the charter of 
each bank every ten years, it is obvious that the Department of Finance is in a 
position to exercise much influence witl the Bankers' Association. While the 
Government h,as no power to compel one bank to take over another, and the 
Bankers' Association has no funds with which to assist a weak bank, never- 
theless, the stability of banking institutions being supreme law in financial 
circles, one can see the force of the opinion expressed by Sir Thomas White, that 
intervention on his part would have resulted in the Home Bank being taken over 
by another bank or by other banks. Speaking strictly, such action could not be 
forced upon the Bankers' Association, or upon any bank, and therefore, if one 
is to consider what the Government could have done to save the Home Bank, 
apart from co-operation by the Bankers' Association or by other banks, the answer 
to such restricted enquiry is, I think, that the Government, after ascertaining 
the facts, could have closed the bank and forced liquidation at a time when, in 
my opinion, no loss would have fallen upon the depositors. But there still 
remained, however, the good services of other financial institutions responding 
to the express desire of the Department of Finance, especially when considering 
the imperative necessity for financial stability at that time. Whether, in view 
of the situation which would }rove been then disclosed by a proper audit and 
inspection, any other financial institution 'ould have burdened itself with the 
Home Bank's liabilities or not, is a matter to which I cannot give absolute and 
definite answer. The evidence of Sir Thomas White is clear and distinct that 
he would not have allowed the Home Bank to fail at that time, but he would 
have had it taken over by some other institution, clearly explaining, however, 
that such action could not be made imperative upon any other bank. He was 
referring to the condition of affairs from a national standpoint, and to the 
overwhelming necessity at that time for keeping up a strong financial front in 
face of the world's demands, and replying upon the unquestioned patriotism of 
those who directed the issues of financial matters within Canada. Sir Henry 
Drayton expressed the same opinion. Keeping in mind these two spheres of 
operation open to the Government, it is clear I think, that all that it could have 
done to save the situation for the depositors would have been either to have 
closed the bank, forcing a liquidation of its assets to meet its liabilities as far 
as then possible, or have brought such influence to bear upon the Bankers' 
Association, or some other bank, as might have resulted in its amalgamation with 
another financial institution. 

Answer to question 5:-- 
I. The financial condition of the Home Bank was:-- 


In 1916: 

(a) More than double its total paid up capital and reserve was locked 
up in four accounts, the securities for which were not realizable. 
(b) :No interest was being paid on three of these large accounts. 
(c) :No money was available for dividends except money belonging 
to the depositors, and the d,ividends paid from year to year were paid out of 
the depositors' money. 
{d) A demand by the depositors for even a small percentage of their 
money could not have been met. 
(e) The total paid up capital and reserve of the bank had been lost. 
(f) A loss of assets calculated by lklr. George Edwards at over 
$3,000,000, had been sustained, leaving the assets and liabilities about even. 

In 1918 

(a) There had been no reduction in the amounts due to the bank 
from their heaviest debtors, but on the contrary further capitalization of 
interest had taken place. 
(b) All the weaknesses which existed in 1916 were accentuated. 
(c) The dividends paid in the meantime, amounting to over $190,000, 
had been paid out of money belonging to depositors. 
{d) A further loss of assets had been sustained but the auditors were 
unable to state with any certainty as to the amount of such loss. 
II. The only steps that the Government could have taken to save 
the situation would have been to make thorough investigation into the 
bank's affairs, which would have resulted: 
(1) In forcing the liquidation of the bank, or, 
(2) Bringing about its amalgamation with another bank. 
It will be noticed that by Order in Council number 412, dated 17th March, 
192.4, the Committee of the Privy Council advised that the powers of the Com- 
missioner under Order in Council number 306:-- 
" Be not limited to the specific years 1915, 1916 and 1918 referred to 
in the petition of the depositors, but should extend to an investigation of 
the affairs of the said bank during the whole interval between the issue 
of the bank's charter and the failure of the said bank, including any 
representations made to the Government of the day, as to its condition, 
any action taken by way of the Ministers of Finance upon such repre- 
sentations as may have been made, and the effect on the position of the 
depositors of any audit under section 56a of the Bank Act if made at 
any time in consequence of such representations." 
I beg to report that there is no evidence that representations of any kind 
were made to the Government concerning the Home Bank of Canada subse- 
quent to the year 1918. 

14-15 GEORGE V, A. 1924 
After his retirement from office, correspondence took place between Sir 
Thomas White and his successor, Sir Henry Drayton, bearing upon the condition 
of the Home Bank, as set out in the evidence given before me by Sir Henry 
Drayton, but nothing requiring consideration here arises therefrom, as in any 
way bearing upon the substance of the depositors' petition. 
An incidental reference to the Home Bank was made by Sir Henry Drayton 
to his successor in office, the Right Honourable W. S. Fielding, when the latter 
succeeded to the position of Finance Minister, but nothing was said as to the 
existence of the memoranda or letters above referred to. 
No representations of any kind appear to have been made to either Sir 
Henry Drayton or to the Right Honourable W. S. Fielding concerning the 
condition of the Home Bank, and although the present Minister of Finance 
exprcssed himself as ready to give evidence before the commission, if required, 
it did not seem to me that anything had taken place which made such a step 
necessary. There was nothing to indicate that his attention had ever been 
drawn to the existence of the various memoranda or to the correspondence above 
dealt with. 
Having reference therefore to the scope of the enquiry, as enlarged by Order 
in Council number 412, I beg to report that there were no representations of any 
kind made to the Government of the day as to the financial condition of the 
Home Bank of Canada after the year 1918, and consequently no action in that 
respect was taken by any of the Ministers of Finance. 

All of which is respectfully submitted. 

OTTAWh, the 10th day of June, 1924. 



14--15 GEORGE V APPENDIX No. 1 A. 1924 


BY H. hi. TORY 

Ottawa, April 4, 1924 

The Honourable JAIIES A. RO, 
Acting Minister of Finance, 
Ottawa, Ont. 
Sm,--I have the honour of presenting, herewith, the report on Aicultural 
Credit, which I was asked to prepare by the Right Honourabl.e W. S. Fielding 
for the Departnent of Finance. 
Your obedient servant, 

H. M. TORY, 
President o] thc Uiversity o] Alberta. 
Administrative Chairman of the Honorary 
Advisory Cotmcil for Scientific and Industrial 


14-15 GEORGE V APPENDIX No. 1 A. 192-$ 


On the authority of a letter from the Minister of Finance, dated August 23, 
1923, I undertook to make an enquiry into the subject of Rural Credits. The 
above mentioned letter intimated that the enquiry should be along the lines 
suggested in the Report of the Special Committee appointed t enquire into 
Agricultural Conditions, dated January 19, 1923. The report is as follows:- 
"As to the necessity of credit on more advantageous terms to the 
farmers of this country, there can belittle room for difference of opinion. 
Well selected and secured farm loans should be among the safest and 
most attractive of investments, while the security offered through the 
pledging of non-perishable and readily marketable farm products is 
certainly comparable to that offered by merchants and manufacturers. 
Notwithstanding these facts, the agriculturist of Canad.% in certain parts 
at least, pays considerably more for long term credits secured by his 
property than many of his competitors in other lands as well .as more 
than is paid by many of his fellow citizens in other walks of life for 
imilar accommodation. 
" Your comnfittee are of the opinion that after consideration along 
the lines hereinafter respectfully sugge.-:te(l, the (;overnment should 
promote the obtaining by agriculturists of this country of long term 
credit.-.-, as well as intermediate credits, and that action should be taken, 
and, if necessary, legislation enacted to this end :t the carliest possible 
" The attention of your committee has been forcibly brought to 
the fact that the operations of the Federal Farm Loan Board system in the 
United States offer, through the National Farm Loan Associ'ation, the 
Federal Land Banks and the Joint Stock Land Banks, facilities for long 
term cred,its to the farmers of that country which when prudently 
availed of, are of immense advantage to them. Likewise, it would appear 
that the farmers of certain European countries, as well as of other parts of 
the commonwcalth of British nations, enjoy credit facilities of an advan- 
tageous nature. 
"The Federal Farm Loan Board system, operating through the 
Federal Intermediate Credit Banks and the Agricultural Credit Corpora- 
tions in the United States, is designed to supply to a very large extent, to 
agriculturists, intermediate credits, that is to say, credits running from 
nine months to three years. 
"It will be remembered that there are at present operating in Canada 
certain provincial systems. As to the success of some of these, serious 
differences of opinions have been expressed. It would appear that some 
are suffering from inadequate loaning funds. 
" To what extent the Federal Government should inaugurate a federal 
system of long term and intermediate term loans to farmers; how sach 
sys.tem, if inaugurated should be related to the different provincial systems; 
what features of, or other systems of, farm credits could, with advantage, 
be adopted, are all matters requiring further searching investigation. 
"Your committee have heard a number of witnesses and have devoted 
a considerable amount of study to the question. They feel, however, that 
the system is of such paramount importance that further investigation 
and study should take place before definite legislation is, brought down. 

14--15 GEORGE V, A. 1924 
All autho.rities apparently agree that there is a barren area. of credit 
unsupplied by either the banks on the one hand or the loan companies 
on the other. 
" We, therefore, recommend the investigation by the Government 
into the question of long term and intermediate term rural credits; the 
operation of existing schemes in Canada, t]e United States .and else- 
where; the examination of the question ns to whether and to what ex- 
tent systems of agricultural credits should be fitted into and related to 
our present banking system; as well as the operations of mortgage and 
loan companies; and timt to this end. and in such manner as may appear 
best to the Government: the views of agriculturists, bankers, representa- 
tives of loan companies, officers of the present Canadian provincial loan 
system, as well as of the officers of the Federal Farm Loan Systems in the 
United States, .-:hould be obtained, in order that adequate and well- 
founded action for the relief of the present situation may be taken. 
" In this connection also, the attention of your committee was dram 
to the question as to whether it would 'be advisable and in accordance 
with sound economic and banking principles to extend to those provinces 
which desired to obtain money for their rural credit systems, facilities 
for obtaining of credit such as are afforded to the chartered banks under 
the provisions of the Finance Act of 1914, under the provisions of which 
Dominion notes are issued to the banks against the deposit of certain 
approved securities with the Treasury Board." 
Taking, therefore, the report of the Special Committee as a basis for the 
enquiry, the procedure in obtaining information was as follows:- 
First, all the documents, legal enactments and reports of the Dominion 
Government and the Provincial Govermnents, not already in my possession, 
were obtained and studied. Following this the central provinces, Alberta, Sas- 
katchewan, Manitoba and Ontario were visited, and the schemes in actual opera- 
tion were gone into with the officials responsible for their administration. 
Wherever possible ministers of Provincial Governments were consulted, especially 
those having already had experience in the creation or the working of legislative 
enactments. The province of British Columbia and the ]Iaritime Provinces 
have not yet been visited as time did not permit, but the laws in operation and 
the reports of the provinces have been studied. 
In order to get first-hand information of the condition of affairs in the 
United States of America, some time was spent in the offices of the Farm Loan 
Board in Washington, under whose supervision botl the Federal Land Banks and 
the Intermediate Credit Banks are functioning. Through the offices of this 
Board the fullest information was made available to me both by means of docu- 
mentary evidence and personal interviews with those responsible for the ad- 
ministration of the affairs of these great organizations. 
Further, letters of introduction were given me to tim presidents of the Federal 
Land Banks in all the centres of the count .ry where they now operate. I was able 
by visiting some of these eentres to get information on the actual working of 
their plans in the most intimate way. 
In selecting points for detailed study, banks operating in parts of the coun- 
try bordering on Canada, the problems of which would be similar to. our own, 
were selected. These were the Land Bank of Springfield, Mass., which operates 
in the states of Maine, New Hampshire, Vermont. Mass,aehusetts and northern 
New York and the Bank at St. Paul, the operation of which covers northern 
Michigan, Wisconsin, Minnesota, North Dakota and Montana. The Bank at 
Baltimore was also visited and studied intimately as presenting somewhat 
contrasting conditions to the others. 

At this point I wish to express my grateful appreciation for the generous 
treatment accorded me by all the officials of the organizations in the United 
States and especially to Commissioner Cooper of tile Farm Loan Board at 
Washinoon, through whose kindness the doors of the organizations all over 
the country were opened to me. 
A good deal of documentary evidence was collected first hand at the centres 
visited. Many of the foreig documents were m,de available through the 
kindness of Mr. Doherty, of the International Institute of Agriculture, Ottawa, 
while valuable assistance in the same way was given by Mr. Lynch, of the 
Department of the Interior. 
The problems involved in the enquiry were also discussed with b,nk 
managers in the United States and Canada, as well as with managers of loan 
companies and insurance companies in both Eastern and Western Canada. 
In addition to the information thus obtained, I drew upon the evidence 
which I collected when in Europe in 1913 with the American Commission, and 
the report.s which grew out of tile work of the commission. As far as possible, 
documents have been obtained showing tile recent trend of rural credit organi- 
zntion in Europe and in Great Britain. Documents have also been obtained 
from New Zealand, Australia, South Africa and South American countries 
where systems of rural credits are already in existence. S far as the time at 
my disposal would permit, I have tried to ,cover the field of the pra.ctical ppli- 
cation of rural credit principles, as distinguished from mere theorizing about 
the matter. 
One further word by way of explanation. The u:ual method of holding 
public sessions of enquiry has not been followed. The facts collected vero 
from responsible people whose statements were substantiated by documen4s, 
legislative enactments and official reports. Many expressions of pinion vere 
received by letter and from individuals personally. These opinions, hovever 
extreme, have been duly considered and carefully weighed. 
In what follows a precise presentation of the facts gathered is attempted. 
Technical terms and statistical information have been avoided, unless con- 
sidered absolutely necessary for a proper understanding of the issues involved. 
In the interest of clearness the report is divided into six sections as follows:-- 
Section I--General Considerations. 
Section II--Rura,l Credit in Europe. 
Section III--Rural Credit in the British Empire, outside Canada-- 
(a} Great Britain. 
{b} Australia. 
(cl South Africa. 
(d New Zealand. 
Section IV--Rural Credit in the United States. 
Section V--Rural Credit in Cana.da. 
Section VI--Considerat.ion of Methods in Relation to Canadian Condi- 
I have tried to make every section of the report complete in itself, so that, 
after reading section 1, those interested in the study of the special problems of 
the indiidual country may do so without reference to other parts. 
It is hardly necessary to point out the movement for Rural Credits on 
this continent is not an incident in the history of an individual country, but 
is part of a movement covering the vhole civilized vorld, an, d would appear 
to be a normal development growing out of the conditions of modern agricul- 

The aims of the Long Term or Mortgage Credit systems, so far as they 
relate to agriculture, are:-- 
1. To free the landowner from the necessity of borrowing directly from 
the individual creditor. 
2. To regulate the payment of interest and principal so as to free the 
borrower from the danger and anxiety associated with demands for repayment 
under circumstances which made payment impossible. 
3. To get rid of usurious rates of interest, putting agriculture in this regard 
on the same basis as other business equally secure. 
From the effort to meet these conditions arose-- 
1. Land mortgage bonds. 
2. Amortization, the repayment of the principal with the interest at a fixed 
rate over a series of years. 
3. Co-operative land mortgage credit., the combining of the security of the 
many to secure a reduction in the rate of interest. 
The reasons advanced in favour of the land mortgage bond are briefly as 
follows :-- 
1. It makes possible the long term mortgage, otherwise impassible, as the 
individual money lender would not as a rule be willing to take a mortgage for 
a term of fifteen or twenty or thirty years. Thi. ('an bc done by the creation 
of a corporate body, the Land Bank, whose existence does not. terminate with the 
death of the individual. 
2. It places between the lender and the borrower an intermediary whose 
business it is to safeguard the loan and whose security is unquestioned. 
3. It makes a more flexible arrangement for the lender, as his bonds are 
always available for sale in case of need or as collateral security of a high order, 
if desired. 
4. It makes possible the use of the amortization principle, that is the repay- 
ment of the principal of the debt by means of small annual instalments along 
with the interest, the payment of principal and interest alike coming out of the 
annual proceeds of the land. 
5. It recognizes also the fact that (he mortgage is to be redeemed by produc- 
tion from the land, thus establishing the security on a rational basi's. The 
mortgage is not strictly a real estate mortgage otherwise. 
6. It allows that combination of security which makes low rates of interest 
possible, if correct principles are followed. In so doing it establishes a reason- 
able limit for a mortgage and thus protects both borrower and lender. 
7. If the fixed capital is raised in this way, free from personal or other kind 
of guarantee, it leaves the total remaining assets of the farmer free as security 
for his seasonal requirements for immediate producIion. This can be used with 
the ordinary bank or through the special banks at the will of the borrower. 
The a.ims of the Sh,ort Term Credit systems as they exist in Europe and the 
Intermediate Credit system as it exists in the United States are: 
1. To give to the agriculturist a credit 'system suited to the seasonal re- 
quirements of his occupation. 
2. To secure for him rates of interest for this requirement consistent with 
the security of his business. 
With regard to the first of these aims, it i's claimed everywhere by those who 
advocate such credit systems that the ordinary banks are not organized to meet 
in a normal way the claims of agriculture. It is not necessary in this report 
to go over the arguments advanced, as they are quite well known. Briefly it 
amounts to this. 

14-15 GEORGE V, A. 1924 
The farmer"s business does not usually give him a quick return. His 
period of investment is at least nine months or a year as he has to await the 
processes of nature to give him his dividends. He is ubject to losses by 
accidcnt, disease an,d fluctuations in prices, causes ovcr which he has no control 
and which make special financial arrangements necessary often covering a 
period considerably longer than that required to produce his yearly crop. Short 
Term Credit of three months even with the right of renewal is to him both 
inconvenient and embarrassing, as although renewal may be promised the 
difficulty in obtaining it is much greater if crop difficulties in the meantime 
have arisen. Further, the ordinary commercial banks, organized especially to suit 
commercial and industrial conditions, to a large extent fail to appreciate the 
position of the farmer, who because of his inability to meet specific banking 
practices finds himself, particularly if he is a snall farmer, regarded as an 
undesirable customer, not because of any fault of his own, but because he is 
unable to marshall his .ssets in a manner to satisfy the bank. Hence the claim 
that a special financial organization with a different purpose from that of the 
ordinary bank is required. 
With regard to the second aim mentioned above, the difficulty to be over- 
come arises naturally out of the conditions iust stated. If the ordinary com- 
mercial bank is incapable of meeting legitimately the farmer's needs, then he 
must either do without working capital or resort to some other means of obtain- 
ing it. To do without renders him helpless, unless he has already acquired  
surplus of his o'n. The only other sources open to him are the private money 
lender or the local merchant through whom he may buy his supplies. In either 
case, while the credit may be obtained for the lenh of time required, the cost is 
very great, often too great in proportion to his productive capacity. The private 
money lender is often more hard-hearted than the banker, while the local 
dealer's credit is generally the most expensive of all. The latter usually con- 
siders it necessary to protect himself against loss by increasing the price of his 
goods., if sold on .credit or by charging a higher rate of interest, if he advaaces 
The Short Term Credit Banks of Europe, the Intermediate Credit Banks of 
the United States and a great variety of state supported financial organizations 
in other civilized countries have sought to overcome the difficulties stated above 
by organizing the security of the farmer on a co-operative or semi-co-operative 
basis in such a way as to make possible credit at reasonable rates of interest 
and for a length of time suited to his needs. 
The foregoing is not to be interpreted as an argument but as an effor to 
state in the briefest possible way the point of view and purpose of the Rural 
Credit movement. The extent to which these organizations have succeeded will 
be apparent later on in this report. 





One of the outstanding facts about modern Europe is the number and 
variety of its financial institutions. Private, public and co-operative organiza- 
tions have grown up everywhere, often with a view to meet special needs or to 
solve special financial problems. In every country the ordinhry joint stock 
bank is, of course, to be found. Side by side with these are to be found savings 
banks working under definite restriction; rural banks specially suited to do 
business with the rural communities; public utility banks, that is banks doing 
a non-profit-making business; land mortgage banks whose activities are often 
confined to land mortgage business or to credit based on land mortgages; gen- 
eral joint stock loan companies; state banks doing business on a profit-making 
bssis in the interest of the State; and finally co-operative banks specially 
regulated to assist and stimulte co-operative institutions. 
Institutions of all of the above mentioned types give consideration to tle 
problems of agriculture and make loans on the basis of farm land security. I 
shall discuss, however, the agricultural credit institutions only; that is, institu- 
tions whose function is to deal with problems of agriculture specifically and 
whose aim is to give the agriculturist money at rates of interest in relation to 
the security offered. These institutions give to the farmer the advantage of 
their knowledge of the value of his security and have resulted in establishing 
agricultural credit on what is regarded as a rational basis. As a consequence 
of their operation the small farmer has been taken out of the hands of tke 
usurers, whose rates of interest fifty years ago ranged from ten per cent to fifty 
per cent, and has been made the cheapest borrower in the country. These 
institutions have done more than this. They have had a regulating influence 
on the rate of interest charged by all the other financial institutions doing 
business with the farmer. As an illustration, one might take the position of 
the Land Mortgage Credit Associations or the Landschaften in Germany. At 
the end of 1912, the financial institutions in Germany lending money on mort- 
gages had invested about $6,500,000.000 in various types of mortgage security. 
O this amount over $2,000,000.000 was in farm mortgages. Of this latter 
a.-nount the Landschaften held $850,000.000, about 13 per cent of the whole, or 
about 40 per cent of that invested in farm mortgages. The rate of interest., 
however, was practically that fixed by the Landschaften. The above figares 
stood practically unchanged in 1920. In this section of the report attention is 
devoted to a description of those institutions whose special aim is to faci!itate 
agricultural credit, dealing with those of a co-operative or state-aided type, or 
a combination of both. 
Studied with respect to their purpose, these institutions fall under two 
general heads:-- 
1. Those giving Long Term or Mortgage Credit. 
2. Those giving Short Term or Personal Credit. 

1. Long Term or Mortgage Credit 
Of the institutions giving Long Term or Mortgage Credit the following 
are the most important and will be described in some detail: 
(1) The German Landschaften or Land Mortgage Credit Associations. 
(2) The German Mortgage Credit Banks. 

channels. In order to realize his scheme he advised that there be creat.ed with 
the approval of the state authorities a credit a.ssociation (landschaft} by per- 
sons in need of credit, which on the basis of mortgages issued in its favour 
would issue mortgage bonds bearing interest payable to bearer. In this way, the 
liability of the individual would not lx' direct to the investor, the bonds being 
guaranteed by the central authority. 
The actual scheme as put. into operation in 1770 was a modification of this 
uggestion. The fundamental idea, that of placin an intermedi:u.', the credit 
association, between the individual borrower and the investor remained as a 
foundation stone of the whole structure. 
As it stands to-day the Landselmft is an association of borrowers for the 
mrpose of securing loahs by tlw issue of bond.a secured by mortgages registered 
:.n!leetively against their properties. The bonds are not chargeable against any 
it dividual mortgage but against the mortgages taken together. For this borrow- 
ing, the landowner is debtor to the association and the association is debtor to 
the investor. The borrower pays interest to the association, and the association 
to the investor. 
The bondholders arc secured it. the following malmer:-- 
(a) Mortgages must not. be granted beyond two-thirds of the value of the 
land. The vahmtion is fixed after careful appraisement by independent officials, 
';he basis being the annual productive capacity of the land as shown by ex- 
(b Bonds must not. be issued in excess of the total amount of the mortgages 
be,ing equal interest. 
(c) The amount of debt is being constantly reduced by amortization at 
least until a certain definite portion is paid off. 
(d) The organizations themselves are non-profit-seeking, and possess no 
share capital upon which profits are paid. 
(e) The bonds are secured not. only by total mortgages of the association, 
but also by its reserves and the accumulated sinking fund payment of mortgages. 
(J) Finally, should all other sources fail the incorporated landowners are 
responsible in some cases to fuq value of their property, in others to a given 
limited liability. 
These associations are public corporations and arc under state super- 
vision. This supervision is exercised by a Royal Commission and the articles 
vf the Credit Association and the regulations must be sanctioned by the Govern- 
ment, much as our railroad companies are in Canada. They possess certain 
special privileges. One of the permanent officials nmst have passed the State 
examination qualifying him for the office of udge so that they are permitted to 
distrain without having recourse to ordinary civil procedure. Within the limits 
mentioned above they are autonomous and nmnage their affairs on the principle 
of self-government. The employees have the standing of state officials. It can- 
ao: be over-emphasized that these associations are associations of bon'owers, 
not. lenders; their aim is to save money for their members, not make money 
for others. Apart from paying interest on bonds, they have no relation to the in- 
vestor who buys his bonds on the market in the usual way. The landowner 
becomes a member of the Credit Association when it acquires a mogage on his 
!and and ceases to be a member when his mortgage has been paid off, so that no 
.,ressure for dividends enters into the conduct of the business. 
The special merits of these associations are summarized by Mr. J. R. Cahill in 
his excellent report for the British Government in the following terms: 
{1) They enable landowners to mobilize, as ig were, their landed possessions 
by the creation of bonds passing into the general system of securities; instead 

(b) Long term loans, which run from ten to seventy years; repayable by 
amortization or at the pleasure of the borrower. The rate of interest at present 
on these loans is, including amortization, approximately 5%. Such loans are 
made for a maximum of not more than. one-half the value of the property 
mortgaged. In the case of vine-yards, it is only one-third. 
(c) Current account loans on mortgage guarantee by opening what is 
called a mortgage line of credit. The rate on these loans is about one-third 
,higimr than that on ordinary mortgages, and the loan is repayable in six 
In addition to the loans made on mortgages, loans are made to muni- 
cipalities and public institutions. The rate of interest on these loans is less 
than on either of the foregoing. These loans are made for a period of from 
one to nine years. 
Since its origin in 1852, the Credit Foncier has loaned more than 9,000,- 
000,000 francs, and, in 1913, had outstanding 5,000,000,000, the full amount 
allowed under its capitalization. An additional capitalization may have 'been 
permitted since this information was obtained. More than half the loans are in 
The share capital of the bank was created to give security to. the land 
,mortgage operations. All mortgage loans are covered by the issue of bonds, 
which are sold in the open markets of the country. The borrower is' paid in 
cash at current price of bonds. The bonds are not guaranteed by the Govern- 
.ment. They are repayable in a maximum of seventy-five years. 
The feature worthy of special attention, is that the Credit Foncier provides 
both the Short Term and Long Term Credit. A mortgage credit being estab- 
lished 'by a property valuation for any client, money can be borrowed against 
this, interest being charged only on the money advanced. This i. a feature 
.not found in Germanv nor is it copied in the system now in operation in the 
United States. The r6dit Foncier thus in a measure serves the purpose for 
certain clients of both long tern and short term credit bank. The Credit 
.Foncier is allowed to take deposits from its clients. It is also permitted, in 
dc]ault o] payment o] interest d amortizatio to sell 'ittot otice and 
withot civil procedtre in tle courts, as in the Latdscha]te. 

(5) The Co-operative Mortgage Banks of D(nmark 
The Co-operative Mortgage tanks of Denmark are fashioned after the 
German Landschaften and do not therefore demand a lengthy description. 
A mortgage bank in Denmark is a credit association composed of landed 
proprietors (from the Danish speaking provinces) founded by the sanction 
of the King with a view to making it easier for its members to borrow money 
upon easy terms upon the mortgage of their estates and by degrees to repay 
the sum borrowed. Only borrowers are admitted to the association. The 
borrower becomes a mem'ber when he delivers to the cashier of the association 
a mortgage upon his property and receives his loan in the shape of debentures 
of the association. The bonds are then sold to anyone who may wish to buy. 
The relationship is specifically defined by regulations in conformity with which 
the loan is made. The security for the principal snd interest of he mortgage 
bond is the sum total of all the mortgages effected by the association. 
Bondholders may have their bonds cashed on giving six months' notice. 
Should the demand, however, exceed the amount at the disposal of the bank 
through its sinking and reserve fund, the bond.holder must wait until pay- 
ments become due from the mortgages. When a bondholder gives notice of his 
desire to cash his bond, he is notified the date he can secure payment. Mortgages 

14-15 GEORGE V, h. 1924 
plus funds held by the branch offices are in the same way paid in to the Central 
Bank. Ea,ch branch office is required to send in to the Central Bank every week 
a return of its transactions and holdings in cash, and every month a full return 
showing the whole state of its business. By such means the Central Bank is 
enabled to exercise a steady and effective control over the branches. In addition, 
each branch office is subjected once every year to a minute inspection carried 
out, in conjunction with the chief inspector of the union, by a committee 
nominated by the,1 of inspection of the central bank. 
" In this manner the Agricultural Central Bank for Germany has, in spite 
of its formation as a ioint stock company, been enabled to retain its genuinely 
co-operative character, transacting business in its wider sphere practically on the 
same co-operative lines as the local credit .societies do on a small scale. Its 
being rcgistrared as a joint stock company facilitates its business with the 
money markets, and provides for it, through its share capital, a working fund 
which cannot be affccted by any changes occurring which influence local 
societies. Keeping the money transactions with societies in its own hands, it is 
in a position to charge lower rates than societies would be saddled with, were 
the business to be carried on through the medium of independent provincial 
intermediate institutions; and by means of its branch offices it secures to itself 
all that information respecting the financial status of local societies which is 
imperatively needed for the appropriate apportionment of credit. It is, there- 
fore, a central bank based entirely upon self-help and self-government, and com- 
bining in itself all the advantages both of a centralized and a decentralized 
clearing house for money." 
As already mentioned, these societies are not only co-operative agencies for 
obtaining credit, but also for the purcha.e and supply of farm requirements, and 
for the sale of farm produce. Within it are organizations for the purchase of 
fertilizers, feed, farm machinery and the collective sale of all kinds of farm 
In Germany there is a general Union of the Raiffeisen Societies with other 
types of co-operative societies such as co-operative dairies, etc. All these are 
under the caption of the "General Union of Rural Socieites". Its aim is education. 
At the close of the year 1913 there were 25,576 of these socities in Germany, of 
which 16,927 were loan and savings banks of hte type described above. 
These credit societies have practically banished usury from the communities 
where they are organized. Any farmer of good standing in his community, who 
has established a reputation of honesty, may obtain his working capital on 
reasonable terms. In 1913 these societies had out on loan 1,800,000,000 marks 
at rates from four to five per cent. 
All this was not accomplished by magic. It followed on a determined and 
systematic effort running through a long period of years to establish credit 
on a basis of security which reduces to a minimum the liability of loss. In 
other words, this has been made possible because the security offreed is of 
such a character as to make serious loss to the lender almost impossible. The 
three essential facts of the security are:-- 
(a) The unlimited liability of all members of the societv. 
(b) The money borrowed must be put to productive use. 
{c} The operations of the individual society is limited to a small, well 
defined area. 

(2) The Crdlt Agricole of France 
The agricultural credit system as worked in France is the outstanding 
example in Europe of a ,credit system involving co-operation among borrowers, 
either on the principle of limited or unlimited liability, and state aid. It is a 
state-aided co-operative system. 

14-15 GEORGE V, A. 1924, 
In nearly every other country of Europe similar institutions exist for the 
promotion of agricultural credit. It is no too much to say ha hese institutions 
have been one of the most important factors in improving rural conditions in 
Europe. As stated by one who is an enthusiastic admirer of them, "The use of 
credit in agriculture may be compared to the use of waer. If the water is 
brought into the field at he right time, in the proper way, and in proper quan- 
tities, it will be valuable; but if the field is flooded or if he water is applied a 
the wrong time, it will be destructive." These societies have aimed to apply 
credit to productive purposes and without question have attained their object. 

14-15 GEORGE V, A. 192-1- 
borroxvers following the German Landschaft, as distinguished from the French 
Cr6d'it Foncier, where the capital of the organization i,s provided bv selling 
stock to persons seeking investments. There are no outside capitalists making 
dividends by means of profits. Investors are guaranteed the interest on the 
bonds by the Federal Land Bank. All other profits, after expenses have been 
paid, go into a common fund in tile interest of the Bank and to pay dividends 
on the stock held by the borrowers. All bonds issued under this system are 
exempt from taxation. 

These Federal Land Banks are not hanks in the ordinary sense of the word. 
They are not permitted to accept deposits of current funds payable on demand, 
excepting from their own stock holders, nor arc they permitted to do ordinary. 
banking business; they are not allowed to loan money on mortgage, excepting 
through the Farm Loan Associations or under the special provision for agents 
in districts where there are no Farm Loan Associations; they are not permitted 
to demand or receive any comnission of any kind not specifically autho.rized 
under the Act; they are mortgage corporations limited to acting as intermediaries 
between investors wishing to buy bonds and borrowers wishing to secure money 
on mortgage. Under the Act, however, the Secretary of the Treasury is 
authorized, in his discretion, upon request to the Farm Loan Board, to make de- 
posits of federal funds for the temporary use of any Federal Land Bank out of 
unappropriated money in the Treasury.. For such deposit the bank must pay 
the usual Government deposit rate and must give satisfactory securit.y to the 
Treasury. A limit was originally fixed at $6,000,000 as an aggregate for such 
During the years 1919, 1920, 1921, the United States Treasury, under 
authorization of ongress, was permitted to purchase $100.000,000 annual, ly of 
the bonds of the Farm Loan Board the reason given being that as the Govern- 
ment was seling bonds in enormous quantities for war purposes it preferred to 
monopolize the market for the time, and so included the Farm Loan Boards' 
demands with its own. Without question it established a rate for the sale of 
the bonds. 

Sale of Bonds 
At first it was arranged that each of the twelve Banks would i.sue its own 
bonds in its own market. At the same time the Farm Loan Board fixed the rate 
of interest to be charged a.t a maximum of 6 per cent, and required uniformity 
in rates as far as possible. It was soon seen that these two things were incon- 
sistent with one another. Bonds offered for sale, for example, for the Bank 
operating in Oregon, could not meet the prices that could be obtained for bonds 
offered for sale for the Bank in Baltimore or in Springfield. The same general 
motive that causes interest rates to be higher in the West than in the East, as 
demanded by mortgage companies, became apparen, t with respect to the sale 
of these bonds, and that, as a common rate of interest was to be charged, it 
would be necessary that some common scheme for the sale of bonds should be 
arranged. The Act was amended, therefore, unifying the responsibility of the 
twelve banks for each other's iues, and making possible a central" agency, 
under the authority of the Farm Loan Board, for the purpose of selling all the 
bonds issued by the various Banks. The selling agency has been organized. 
The head of it is one of the great bond houses of the United States with which 
are associated 5 others forming a Syndicate. Under this Syndicate are some 
800 smaller bon'd houses and 'banks operating through approximately 8,000 
selling agents, disri'buted in all part.s of the United States. The Syndicate re- 



ing a good deal of time trying to bring about, a spirit of co-operation among the 
borrowers and were convinced that as the days went by these associations would 
become a strong conservative influence in maintaining the integrity of the Bank. 
In the beginning, there was a disposition on the part of the local association 
members to over-value their property, having, doubtless, the feeling that it 
was government money they were using and. therefore, were disposed to take 
as much as would be allowed. This, I was informed, very rapidly disappeared 
when they began to realize that, in case of loss, they would be called upon 
under the double liability clause, so that, with the passing of years and a better 
understanding, these local associations are becoming helpful, not only in their 
own commuuities, but helpful also in relation to the Bank. 
The two things that stand out as having been definitely accomplished by 
the Federal Farm Loan system are:-- 
(1) Equalization of interest., viz., a maximmn of six per cent, from the 
Atlantic to the Pacific. This was only made possible by the establishment of 
mutual responsibility between all twelve banks and the fact that the scheme 
being under the supervision of the Federal Farm Loan Board gave confidence 
to the investing public. 
(2) The second is the firm establishment under this system of the principle 
of anaortization of farm loans. It seems worth repeating a statement previously 
made that the scheme of anaortization would not have been valuable in the days 
when there was plenty of cheap land and farmers could nmve easily from one 
place to another for purposes of settlement. Under these circumstances, it 
might be possible by means of production, in a short period of years, to repay 
mortgages raised on land at. these cheap valuations, but with the increasing 
valuation of land, the increased capital investment necessary for the purchase 
of a farm, tile old system o short mortgage made tile redeenfing of a mortgage 
impossible out of farm production and the United States farmers found them- 
selves in exactly tile same position that the farmers of Europe found them- 
selves in one hundred years ago. The establishment of this principle without 
question will enormously strengthen the position of the American farmer in 
competition with Europe. 
On the other hand, I think it is wise to point out that the Federal Farm 
Loan scheme was conceived as a business scheme intended to be self-supporting 
and ultimately free from any lien upon the (government. The result is loans 
have only been made where the security was of a class to warrant the loan, and 
under very rigid terms. While the advantage of interest, rates and of amort.iz- 
ation were made available to the farmers, there was no slackening in the 
demand for a proper security for the money loaned. This, in nay judgment, is 
the real reason why the Federal Land Banks of the north-western states have 
not been able to meet the financial needs of these communities. In parts of 
these states, at least, a condition of affairs has been reached with regard to 
income from land that nmkes it impossible for money to be loaned by the 
Federal Land Banks or any other bank with the security which the law demands. 
I feel confident that the major part of the complaints made, and there are 
many, against the operation of the Federal Land Banks, is due to the fact that 
they have refused to make loans of money against properties that could not 
offer sufficient security. In other words they have refu.ed to become philan- 
thropic institutions. 

2. Short Term and Intermediate (redit 

Before entering into a discussion of the organization of the Federal Inter- 
mediate Credit Banks, it seems necessary to look broadly at the way the 
problem of Short Term Credits for Agriculture has been faced in the United 
States. As stated previously, the agitation for a better scheme of rural credits 

14-15 GEORGE V, A. 1924. 
involving botl mortgage credit and short term credit began many years ago. 
In fact, the whole movement for the establishment and maintenance of small 
State Banks had behind it the desire to take advantage of the commercial 
opportunities which agriculture offered, and, a.t the same time, to provide better 
facilities for agriculfural credit. An illustration of this can be seen in the Bank 
Law of the State of Kansas, passed in 1897, which grew out of the agitation 
which followed the period of depression from 1891 to 1895. The objects and 
methods of the System, as set forth by one of its authors, is as follows:-- 
(1) To finance the farm efficiently. 
(2) To oversee the investment of money in farms so that it would be made 
(3) To supcrvise the farming operations of the borrower so as to ensure 
profitable return. 
(4} To compel the majority of the directors of the bank to live at the 
place where the bank is located. 
(5) To make the capital small so that it could be put in rural communities, 
yet having the competition of nearby banks. 
It was believed that, with proper local organization and oversight, risks 
could be taken on individuals which a large bank, without the local knowledge 
could not afford to take. These banks were deposit banks only, and aimed at 
using the local capital available in the development of the local community. 
That these banks have flourished side by side with national and private banks, 
there is no doubt, and their local intimate relation to the local community has 
been of immense value. Similar statements could be made with regard to 
the other State Banking Systems, at least as operated in most of fle Western 
States of America. 
The whole matter was brought into prominence again during the crisis of 
1907 when so many of the small banks of the United States closed their doors. 
This was due largely to the absence of a plan by which the banks in the country 
could adjust themselves in relation to each other. Corresponding to the agita- 
tion which led ultimately to the establishment of the Federal Farm Loan 
Board, there was also an agitation for the securing of better facilities through 
which capital might flow from one part of the country to another in times of 
stress. In 1909 a :Monetary Commission was appointed by the United States 
which, after a very intensive study of banking methods in other countries, ulti- 
mately brought about the system known as "The Federal Reserve System." 
It was felt at that time that the scheme of small banks scattered throughout the 
country, of which there were nearly 30,000, was very effective, in so far as they 
related to the local conmmnity in which they operated. The absence of some 
centralizing agency was very severely felt, however, especially in times of de- 
pression. A competent authority has stated these difficulties as follows:- 
(1) Decentralization. 
{2) Inelasticity of credit. 
(3) A cumbersome exchange and transfer system. 
{4} Defective organization as regards relation to the Federal Treasury. 
With regard to the first, of these, it will be only necessary to point out that 
the 30,000 banks, each with its cash reserve without any exchange relations 
other than through the Clearing House, made the flow of capital from one part 
of the county to another almost impossible, and, as few of these banks had 
any definite relation to the Treasury, even Government help in emergency times 
was unavailable. 
The Federal Reserve Act which was approved December 23rd, 1913, aimed 
at overcoming these difficulties. It provided for the establishment of twelve 



farmers. When the prices fell for farm products in 1920, they immediately began 
to increase their loans through the members of the system to help steady 
agricultural conditions. 
For example, it was many months after the great price decline began before 
the loans made from the bank in Minneapolis to the northwest farmers reached 
its peak. During the period from March to November, 1920, there was more than 
;30,000,000 increase in. loans made under the system in the country centering 
on Minneapolis, and at the end of the period, loans had reached the sum of 
$115,000,000. During the same period the Federal Reserve Banks, located in 
agricultural districts, increased their loans by more than $500,000,000 and their 
issues of Federal Reserve notes by a nearly equal amount. 
There were two principal causes why the Federal Reserve System did not 
atisfy the demands of the agricultural districts. 
(1) Because a large percentage of the small state banks which do business 
with the farmers did not become members of the Federal Reserve System, and, 
therefore, were not able to get the required discounting privilege. 
(2) Because the length of time for which the rcdiscounting privilege was 
allowed was too short to satisfy the farmer's requirements. 
The former was the fault of the small banks; the latter, if a fault, the fault 
of the law itself and not of the administration. 
It was because of these circumstances that the agitation took place which 
brought about the foundation of the Federal Intermediate Credit Banks described 
on the following pages. 


The Intermediate Credit Banks were organized for the purpose of providing 
credit for periods longer than granted by ordinary banking operations. They 
were intended to cover what was spoken of as the barren area of credit between 
the three to six months provided under the Federal Reserve System and the 
minimum mortgage term. The Act creating them calls for loans between the 
period of six months and three years. The Act was passed in the closing days of 
the 67th Congress, March, 1923. As the transactions of the Intermediate Credit. 
Banks are real banking transactions as distinguished from mortgage transactions, 
their operations are merely time extensions of the ordinary banking systems of 
the country, but related specifically to the service of agriculture. It would 
appear for that reason that they might have functioned more easily under the 
Federal Reserve System and the reason for not so doing is not quite apparent. 
They are associated, however, with the Federal Land Bank scheme and under 
the direction of the Federal Farm Loan Board. Perhaps the chief advantage of 
this arrangement is the fact that they will be making banking loans to the same 
people who will be taking mortgages under the Federal Land Banks and 
will be some advantage in having the same persons supervising and determining 
upon credits to be granted for current account that have already dealt with the 
individuals from the point of view of capital loans. Frown information which i 
obtained I cohcluded that that was the chief advantage of the connection with 
the Federal Land Banks and perhaps the further reason that the Federal Reserve 
Board wishes to disassociate itself entirely from the operation of loans made for 
a longer period than the ordinary term allowed to the Federal Reserve Banks. 
Under the Act creating the Intermediate Banks., the Farm Loan Board is 
given power to grant charters to twelve institutions to be known as Federal Inter- 
mediate Credit Banks. It instructed the Board to establish these institutions in 
the same cities as the twelve Federal Land Banks. The officers and directors of 
the Federal Land Banks were made ex-officio officers and directors of the several 



Like all the other institutions described, the War Finance Corporation acts 
only through organized financial institutions. 
The following diagram shows the relation of the various institutions to 
the :Farm Loan Board and to each other, with the minimum capitalization. 
Tracing backward, it also shows the steps through which the application of the 
borrower must go to secure final action. It will be seen that except in the case 
of the Joint Stock Banks which are private institutions under special regulations, 
the farmer only gets access to the lending authority through local organizations. 


80 Joint Stock 
',Capital $250,000 each) 

12 Federal I.and Banks 
(Capital $750,000 
5% of loans each) 

12 Intermediate Credit Banks 
(Capital $5,000,000 eac  ) 

5,000 National Farm 
Loan Associations 
Min. loans $20,000 
or capital $1,000 

Agents in Small National Trust 
Special Banks Agricultural Companies, 
Cases Credit etc. 


Fa,'mer Farmer Farmer Farmer 


14-15 GEORGE V, A. 1924 
These figures would probably hold for Western Canada as a whole. In the 
Eastern Provinces the interest charges would be lighter. The aim of the Pro- 
vincial Credit Organizations has been to lighten this burden by fixing $ates 
varying from 6 to 7 per cent. They have succeeded only in proportion to the 
business done as the total loans have not been enough to afford effective 
competition. It remains for consideration whether agriculture can prosper 
under such charges. 

14-15 GEORGE V, A. 1924 
matter and to see whethe some scheme could not be devised that would remove 
the suspicion and doubt that have arisen in connection with it. 
I think it. cannot be denied, referring especially to Western Canada, that the 
mortgage business is conducted in an exceedingly expensive manner and that 
reasonable co-operation between loan companies might greatly reduce the pesent 
cosg of administration. The Federal Land Banks of the United States are to-day 
conducting their business on a margin of one per cent. and are setting aside out 
of that. a considerable margin for possible losses. Figures are not. available for 
Canada as to the cost of administering the farm mortgage business, but. I think 
there can be no doubt, thag it is much beyond these, figures. 
Further, there is without question, a considerable number of farmers in 
Canada, who, following the urgent advice given during the war and at the close 
of the war to continue producti()n, find themselves, due to the heavy deflation, in 
the same position that farmers found themselves in England and the United 
States, and for whom some plan of amort.ization of loans is absolutely necessary, 
if they are go be able to. continue on the land. This demand is being met to-day 
only in a very limited degree. It is very doubtful whether the Provinces alone 
can continue to develop long term mortgage business without taking risks greater 
than they should take in connection with their own financing. 
Now, while I am firmly of tim opinion expressed by Sir Horace Plunkett 
and already quoted, that agriculture must be a self supporting industry, I 
believe with equal confidence that there is a need in Canada for some organiza- 
tion co-ordinating the credit, which the farmer has to offer in such a way as to 
make it. more atgractive to the man who wishes to loan his money at a reasonable 
rate of interest with proper security. Every country, in the civilized world has 
ultimately been compelled to take such a step. When it. is remembered that two 
per cent, under the ordinary amortization scheme, will amortize a farm mortgage 
in 20 years, therefore,  reduction of two per cent. in interest, is equivalent in 35 
years to the capital debt., the significance of the foregoing st.atement will be 

Short Term Loans 
With regard to short term loans, as already pointed out., two things hve 
been aimed at-- 
(1) to organize the security offered for them so as to secure reasonable 
rates of interest, and 
(2) to increase the time of the loan, consistent with the seasonal production 
of agriculture. 
It is quite apparent from the facts already related that three methods have 
been employed in securing these aims- 
{l) the better, regulation of the security offered by means of co-operation 
with either limited or unlimited liability and government supervision; 
(2) by direct government assistance; 
(3) by  combination of the above. 
With regard to {1), on the European contineng, generally, the better organ- 
ization of security so as to. enable, agriculture to be self-sust.aining is the aim of 
the co-operative credit movement. 
The Intermediate Credit Banks of the United Sgates have been organized 
wit] the same idea in mind. They have been granted public organization and. 
supervision and a portion pf their capitalization, in order to make it possible 
that all charges shall ultimately be borne by the business in t]e interest of which 
they were instituted. A special regulation in t1e Act of incorporation prohibits 
the United States Government. from guaranteeing any of their obligations. 


14-15 GEORGE V, A. 1924 

EXHIBIT :No. 19 


under the Finance Act, 1923. 

The Bank {hereafter 
called "the Bank") hereby applies under the provisions of the Finance Act, 
4923, for a loan of dollars or such less amount as may be 
approved by the Treasury Board and offers as security therefor the securities set 
forth in the Schedule attached hereto. 

The Bank will repay the amount advanced with interest at the rate of ...... 
per cent per annum on or before the first of May 19 .... 
The Bank submits herewith (or undertakes to furnish as soon as possible 
as the case may be) a certified copy of a resolution of the Board of Directors 
of the Bank authorizing this application and the pledge of the securities specified. 

The Bank will upon approval of the loan deposit the securities with the 
Minister of Finance or for his account with a depository authorized by him 
to receive the same accompanied by a duly executed pledge agreement in the 
form approved by the Treasury Board. 

Dated this day of 19 
The Bank 

President (or Vice-president or other Director 
authorized by resolution of the Board). 

General Manager or other officer authorized 
by resolution of the Board). 

Approved for an advance 
of $ 

Secretary of the Treasury Board. 


Scu,, giving description and brief particulars of securities to be deposite.d pursuant to 
attached application by the Bank 


Bank's valuation 

Valuation by Treasury 
Board as basis 
for advance 

The Bank 

President (or Vice-President or other Director 
authorized by the Board). 

General Manager (or other ot]icer authorized 
by the Board). 

14-15 GEORGE V, A. 1924 
14. IIis Majesty shall not be responsible for the loss of an- of the pledged 
securities while in transit to or from the Department of Finance or the office 
of an Assistant Receiver-General. 
15. " Minister" shall mean the Minister or Acting Minister of Finance, or 
any Deputy or Assistant Deputy Minister or any appointee of the Minister or 
Acting Minister. " Bank " shall mean the pledging Bank. 
16. For the purpose of uniformity it is declared that the Agreement of 
Pledge and the rights and obligations of IIis Majesty and the Bank respectively 
thereunder and under these regulations shall be interpreted and governed by the 
law of the Province of Ontario. 
17. These regulations and the terms and conditions affecting the deposit of 
securities and the agreement of pledge thereof may from time to time be added 
to, varied or modified by the Treasury Board, and all such additions, variations 
and modifications shall apply to all agreements of pledge then existing, as well as 
to those thereafter entered into with the same effect as if embodied therein. 
18. Whenever documents of title covering grain or other commodities are 
released under the provisions of Section 4 of the Act, the Bank shall be required 
to execute a declaration of trust in the following form:-- 
" Whereas the Minister of Finance, under the authority of the Finance 
Act, 1923, has advanced to the Bank ...................... through its 
Branch at ................... the sum of ...................... dollars 
($ .................. ) upon the pledge of the following securities, that 
is to say:--(o) 
((a) Here Jns descrlp- 
tion and amount of 
each promissory, note 
or bill of exchange 
ad the relative do- 
cuments of title. 
And whereas the Minister, under the authority of Section 4 of the said Act, 
has permitted the bills of lading and other documents of title covering the grain 
and/or other commodities umlerlying the above mentioned securities to go 
forward under the control of the Bank with the said grain axd/or other com- 
The said Bank .................... hereby acknowledges receipt of the said 
bills of lading and otlmr documents of title. 
The said Bank ...................... receives the above as trustee for the 
Minister under the provisions of the said Act. 
The said Bank .................... further undertakes to keep this trans- 
action separate from any others and to remit to the Minister the entire net pro- 
ceeds when realized or a portion thereof sufficient to pay off the amount of the 
advances above mentioned and the interest thereon unless the said advances 
and interest have sooner been paid off. 
The said Bank undertakes to cover the grain and/or other commodities by 
insurance against loss by accident, fire, or otherwise and to hold the policy or 
policies on behalf of the Minister. 
Dated .......................... 
Bank .............................. 

Branch ............................ 


14-15 GEORGE V APPENDIX No. 1 A. 1924. 


1. Revell, Alexander Hamilton, 1908. 
Outline of a plan of guaranty and a discussion from the point of view 
of depositor, business man and public. (Strongly partisan.) 
Crerar, 332.1Q800. 
2. Frame, Andrew Jay, 1908. 
Address at State Bankers' Association meeting in Iowa. (Arguments 
against guaranty.) 
Crerar, 332.1Q803. 
3. Laughlin, James Laurence, 1908. 
Address before States Bankers' Association at Lincoln, Nebraska. 
U. of C., I-IGI881L3. 
4. University of Oklahoma Extension Division, 1908. 
Guaranty of Bank Deposits. Arguments for and against. 
Crerar, 051041, v. 16. 
5. University of Wisconsin Extension Division, 1908. 
Government insurance of bank deposits. Reprint of articles by Revell, 
Hoch, Forgan, Laughlin, Zimmerman and others collected by the 
Department of Debating and Public Speaking. 
Crerar, 332.1Q802; U. of C., HGI782U5W6. 
6. tterrick, Myron T., 1908. 
Address before the Ohio General Assembly in reply to a speech by 
W. J. Bryan favouring the guaranty of bank deposits. 
Crerar, 332.1Q808. 
7. Shibley, George Henry, 1914. 
History of the Guaranty of Bank Deposits. 
Crerar, 332.1R.400; U of C., HG1782USS5. 
8. Dickinson, Zenas Clark, 1914. 
Bank Deposit Guaranty in Nebraska. Historical and critical study 
published by the Uniyersity of Nebraska History and Political 
Science Department. 
U. of C., JK2430b[3 No. 6. 
9. Robb, Thomas Bruce, 1921. 
Guaranty of Bank Deposits. Prize essay, Hart Schafner and Marx 
Prize in Economics. A critical survey of the results attained in 
the various states with an inpartial estimate of benefits and dis- 
Crerar, 332.1So04; U. of C., HGI781R66. 
!0. Commercial West, p. 4-5, February 24, 1923. 
Bank Deposit Law in Nebraska. (Paying losses of failed banks w;.ll 
cost solvent banks 25 per cent of their capital.) 
11. Smith, T. H., Chicago Banker, p. 9-10, March 3, 1923. 
Guaranty of Bank Deposits in Minnesota. 
12. American Bankers' Association Journal, April 1923. 
Deposit Guaranty in Washington State. 

14-15 GEORGE V, A. 1924 
13. Cooke, Thornton., Quarterly Journ,al of Economics, November, 1923. 
Collapse of Guaranty of Bank Deposits in Oklahoma. Mr. Cooke 
has been one of the closest students of the movement and has 
contributed articles of interest concerning it which have appeared 
on several occasions during the past ten years in the Quarterly 
Journal of Economics. 
14. ttodap, R. G., Mountain States Banker, p. 23-4, March, 1923. 
Guaranty Bank Law. 
15. Commercial West, p. 18, January 20, 1923. 
Survey of Guaranty of Bank Deposit Laws. 
16. Reports of the Comptroller of Currency. 
Particularly that of 1921. 
17. Garret, Saturday Evening Post. Issues for :March, 1924. 
Popular articles on the banking conditions in the Northwest. 

14-15 GEORGE V APPENDIX No. 1 A. 1924. 


FRmAV, May 2, 1924. 
The Committee met at 11 o'clock a.m. 

The Chairman, Mr. Mitchell, presided. 

Present: Messieurs Baxter, Benoit, Black (Halifax), Black (Yukon), 
Cahill, Caldwell, Carmichael, Clark, Coote, Descoteaux, Drayton, Garland 
(Bow River), Good, Grimmer, Hanson, Healy, Irvine, McTaggart, Millar, 
Mitchell, Papineau, Robb, Ryckman, St. Pre, Sales, Senn, Shaw, Speakman, 
Spencer, Steedsman, Stevens, Tobin, Vien--33. 
After the consideration of Private Bills on the Order Paper-- 
The Chairman read the Home Bank Order of Reference, as follows:-- 

MONDAY, March 31, 1924. 
Ordered,---That the Resolution adopted by this House on Thursday, 27th March, as 
follows :M 
"That in the opinion of this House, in view of the failure of the Home Bank and of 
the fact that official prosecutions and inquiries have been instituted, including the Royal 
Commission which has been appointed to investigate the facts alleged in the petition 
represented by the depositors of the Bank and the affairs of the Bank generally; and con- 
sidering that the evidence received and to be taken before the several tribunals will be 
available for consideration, the Select Standing Committee on Banking and Commerce 
should be instructed to consider the provisions of the Bank Act with a view to recom- 
mending such amendments to the Act as will better protect the interests of depositors 
generally and will prevent similar occurrences in the future; and also to consider the report 
of the Royal Commission in its bearing upon these matters and with respect to the pos- 
sibility of saving the Home Bank depositors from loss." be referred to the Select Standing 
Committee on Banking and Commerce for such action as the Committee may deem 
Clerk, House o] Commons. 
A sub-committee, consisting of Messrs Good, Cahill, Baxter, Irvine, Vien 
and Mitchell, were appointed to consider and report to the Committee as to 
witnesses re Home Bank reference, with leave to report from time to time. 
The Committee ad_iourned to meet at the call of the Chair. 

Chie] Clerk o] Committees. 



14-15 GEORGE V. A. 1924 
CO,,ITTEE Roo 436, 
Wednesday, May 7, 1924. 
The Committee met at 11 o'clock a.m. 

The Chairman, Mr. Mitchell, presided. 
Present: Messieurs Baxter, Black (Halifax), Carmichael, Carruthers, 
Casgrain, Clark, Duncan, Elliott {Dundas), Good, Guthrie, Harris, Healy, 
Irvine, Maephail, MeMaster, Maybee, Millar, Mitchell, Robitaille, St. Pre, 
Sales, Shaw, Steedsman, Stevens, Tobin and Vien.--26. 
After the consideration of Private Bills on the Order Paper-- 
The sub-committee on witnesses reported progress and asked for leave to 
sit again. 
Report adopted. 
The Committee adjourned to meet at 11 a.m. on Thursday, May 8th, 1924. 

Chic] Clerk o] Committees. 

Thursday, May 8, 1924. 
The Committee met at 11 o'clock a.m. 
The Chairman, Mr. Mitchell, presided. 
Present: Messieurs Benoit, Carmichael, Carruthers, Clark, Coote, Desco- 
teaux, Garland (Bow River), Good, Grimmer, Harris, Healy, Hodgins, Hudson, 
Irvine, Jacobs, Kellner, King (Huron), Ladner, Maclean (York), Macphail. 
McKay, McMaster, McQuarrie, Maybee, Mitchell, Ryckman, Spencer, Stevens, 
Tobin, Vien, Voods, Woodsworth.--32. 
Mr. Vien, for Mr. Cahill, read the second report of the sub-committee, a 
follows :-- 


Your sub-committee under the Chairmanshi0 of Mr. Frank S. Cahill, 
M.P., and composed of the Honourable Walter Mitchell, the Honourable J. 
B. M. Baxter, Messrs. W. C. Good, William Irvine and Thomas Vien have 
studied the question of witnesses to be summoned in respect of the subject 
natter referred to them by the Standing Committee on Banking and Com- 
merce. They have limited themselves to the subject of bank inspection. 
The following names have been suggested: 
1. Mr. John S. Williams, formerly comptroller of Currency at Washing- 
ton, D.C., now of Richmond, Virginia. 
2. Mr. La-rence O. Murray also formerly comptroller of Currency, whose 
address is presently unknown to us. 
3. Mr. W. P. Malburn, American Exchange National Bank, New York 
4. Mr. E. W. Stearns in the office of the comptroller of Currency, Wash- 
ington, D.C. 
5. Mr. Charles A. McLean. Vice-President Ladd & Tilton National Bank. 
Portland, Ore. 

6. Sir William E. Stavert, of Montreal. 
7. Mr. G. D. Finlayson, Superintendent 
Finance, Ottawa. 
Mr. Good was instructed by the sub-committee to inquire personally 
from these gentlemen whether they would be willing to give evidence if the 
Committee on Banking and Commerce desired their presence. 
The sub-committee also instructed the secretary, Mr. Todd, to see to it 
that a wire be sent to the Secretary of the Trcasu._ at Washington, drafted a. 

of Insurance, Department of 

"To the Secretary._ of Treasury._, 
Washington, D.C. 
The House of Commons' Banking Committee are considering advis- 
ability of adopting a system of Government Inspection of banks and 
desire expert evidence re your own system stop. Can you kindly sug- 
gest names of men well qualified to give full information. The follow- 
ing names have been suggested John S. Williams, Lawrence 0. Murra), 
ex-comptroller of Currency, W. P. Malburn of the American Exchange 
National Bank, New York City, F. W. Stearns of the Comptroller' 
office stop. Kindly wire reply collect. 

(Sgd.) W. G. MITCHELL. 
The sub-committee begs to recommend that Sir William E. Stavert, of 
Montreal, and Mr. G. D. Finlayson be requested to appear on the question of 
Your sub-committee further recommends that your Committee decide first 
other subjects of investigation before they be requested to suggest other names. 

Chairman ol Sub-Committee 

On motion of Mr. Vien the report of the sub-committee was adopted as 
Mr. Vien, for Mr. Cahill, read copies of telegrams sent by the Secretary, 
Mr. Todd and by Mr. Good, as instructed by the sub-committee. Copies of 
telegrams were filed with the clerk. Mr. Good read telegram received from Mr. 
John Skelton Williams, which was also filed with the clerk. 
The Chairman read a further Order of Reference, as follows:-- 
Ordered,--That the Report of Doctor Tory on Agricultural Credits, tabled on the 15th 
April, be referred to the said Committee. 
Clerk, House o] Commor. 

Mr. Ladner suggested the calling of representatives of the Canadian Banker' 
Association to give evidence as to bank inspection. Discussion followed and 
Mr. Ladner's suggestion was laid over for future consideration. 
Committee decided to proceed with their investigation into "Bank Inspection 
Systems", "Safety of Deposits" and "Double Liability of Shareholders"; Dr. 
Tory's Report on "Agricultural Credits" to be investigated later. 

14-15 GEORGE V, A. 1924 
On motion of Mr. Stevens, 
Ordered,--That this Committee request the Minisber of Finance to nominate 
,-.n official of his Department to give evidence before the Committee as to the 
operation and results of the last amendments to the Bank Act. 
On motion of Mr. Vien, acting chairman of the sub-committee on witnesses, 
Ordered,--That Sir William E. Stavert of Montreal be summoned to give 
evidence before this Committee on Tuesday next; and that the official nominated 
by the Minister of Finance be also requested to attend on that day to give 

On motion of Mr. Ladner, 
Ordered,--That the Minister of Finance be requested by this Committee 
to obtain from the chartered banks of Canada pursuant to his powers under the 
Iank Act the following information :-- 
1. Tim uumber of savings accounts in each of the chartered banks of Canada 
having on deposit as at 30th April, 1924, the sum of $3,000 or less. 
2. The total amount of money on said date in each of the said banks of 
such savings accounts up to the sum of $3,000. 
3. Similar information with respect to savings accounts between $3,000 and 
4. Similar information with respect to savings accounts between $5,000 and 

On motion of Mr. Shaw, 
Resolved,--That this Committee is of opinion that the matter of guaranteeing 
deposits is within the scope of the Reference, therefore, 
Ordered,--That the sub-committee be empowered to consider the names of 
witnesses familiar with the system or systems of guaranteeing deposits in vogue 
and to report thereon to the C_9mmittee with a view of calling such witnesses. 

Notices ol Motion 

No. 1.--By Mr. Shaw:- 
That this Committee is of opinion that the purpose, organization and 
operation of some type of properly administered Central or Reserve Bank falls 
within the scope of the Reference; and that the sub-committee is hereby 
instructed to suggest to this Committee the names of competent witnesses to give 
evidence on this subject. 

No. 2.--By Mr. Ladner: 
That this Committee recommend to Parliament the elimination from the 
Bank Act 1923, of all provisions relating to double liability of shareholders and 
that accordingly section 125 of the said Act and other sections relating to question 
of double liability be repealed. 

The Committee adjourned at 12.50 o'clock a.m. to meet again at 11 o'clock 
a.m. on Tuesday, May 13, 1924. 
Clerk to Committee. 

Messrs, E. W. Stearns, of the Comptroller's office Washiugton, D.C., and 
Sherill Smith, Vice-President, Chase National Bank, New York, to be requested 
to give evidence on a later date to be decided upon. 
Your sub-committee have instructed the Clerk of the Committee to 
telegraph Messrs Williams and Pole with the view of ascertaining whether or 
not the dates recommended will suit their convenience. 
Chairman o] the sub-conmittee. 
On motion of Mr. Tobin the Report of the sub-committee was adopted as 
On motion of lIr. Good, 
Ordered,---That Mr. John Skelton Williams, Richmond Virginia, former 
Comptroller of the Currency be requested to give evidence before this Com- 
mittee on Tuesday, May 20th and that Mr. Williams be tendered the usual 
travelling and living expenses of a witness before parliamentary committees. 
On motion of Mr. Irvine, 
Ordered,--That hIr. J. W. Pole, Washington, ]).C., Chief National Bank 
examiner, be requested to give evidence before this Committee on Thursday, 
May 22nd, and that Mr. Pole be tendered the usual travelling and living ex- 
penses of a witness before parliamentary committees. 
On motion of Mr. Irvine, 
Ordered,--That a Report be presented to the House asking that the Com- 
mittee be granted leave to sit while the House is in session. Presented to House, 
May 14, 1924. Concurrence moved, concurred in, May 14, 1924. (See page 
267, Votes and Proceedings.) 
Mr. George Edwards, Chartered Accountant, Toronto, who was in attend- 
ance, continued his evidence and retired. 
Notice o] Motion 
Mr. Ladner gave notice of the following hlotion:-- 
"That in the opinion of this Committee the Bank Act should be amended 
in order to provide for the establishment in the chartered banks of Canada of a 
special savings account or other class of accounts for savings deposits in addition 
to those now existing, whereby all holders of deposits in such special savings 
account in any one bank, or branch thereof, shall be protected or guaranteed 
against loss up to the sum of $3,000 according to a similar principle as that now 
provided for in sections 62 to 69 inclusive of the Bank Act relating to the pro- 
tection of bank notes by the establishment of a Iund known as the Bank Circu- 
lation ledemption Fund, or that such special savings account be established in 
accordance with some other principle of insurance the premium of which will 
be paid by the depositors or the chartered banks of Can.ada, or both, or in such 
other nmnner as the committee may consider capable of giving reasonable pro- 
ection to depositors of money in savings accounts in such sums as the com- 
mittee may determine." 
The Committee adjourned at 1.15 o'clock p.m. to meet at 11 o'clock to- 
morrow, Thursday, May 15, 1924. 
S. R. GORDOn, 
Clerl to Committee. 


14-15 GEORGE V, A. 1924 

THURSDAY, May 15, 1924. 

The Committee met at 11 o'clock a.m. 

In the absence of the Chairman Mr. Vien presided. 

Present: Messieurs Baxter, Benoit, Bird, Black (Halifax), Bristol, Cahill, 
Caldwell, Carmichael, Carruthers, Chaplin, Chevrier, Clark, Clifford, Coote, 
Desaulniers, Descoteaux, Drayton, Duncan, Elliott (Dundas), Elliott (Water- 
loo), Garland (Bow River), Good, Grimmer, Hanson, Harris, Hatfield, Healy, 
Hodgins, Hughes, Irvine, Jacobs, Kellner, King (Huron), Ladner, McBride, 
Macdonald (Pictou), Mackinnon, Maclean (York), Macphail, McCrea, McKay, 
:McMaster, McQuarrie, McTaggart, Malcolm, Marler, Maybee, Morin, Papineau, 
Rankin, Robb, Bobitaille, Ryckman, Sales, Senn, Shaw, Sinclair (Oxf,rd), 
Sinclair (Queens, P.E.I.), Speakman, Spencer, Steedsman, Stevens, Vien, Ward 
and Woods--65. 

The acting Chairman read telegraphic correspondence between Mr. J. 
Skelton Williams and the Chairman and Clerk, in which the date for Mr. Wil- 
liams appearance before the Committee was set for Thursday, May 22nd, and 
between Mr. J. W. Pole and the Clerk in which the date for Mr. Pole's appear- 
ance was set for Tuesday, May 20th. 

Mr. George Edwards, Chartered Accountant, Toronto, who was in attend- 
ance, continued his evidence and retired. 

The Committee adjourned at 1.05 o'clock p.m. to meet again at 2 o'clock 

The Committee reassembled at 2 o'clock p.m., the Acting Chairman, Mr. 
Vien, presiding. 

Sir William E. Stavert, Financier, Montreal, who was in attendance in 
obedience to summons, was called, sworn, gave evidence and was discharged 
from further attendance. 

The Committee adjourned at 3.10 o'clock p.m. to meet again at 11 o'clock 
a.m. on Tuesday, May 20, 1924. 
Clerk to Committee. 



COMITTE RooI 429, 
TUESDAY, May 20, 1924. 
The Committee met at 11 o'clock a.m. 
Present: Messieurs Benoit, Black (Yukon), Cahill, Caldwell, Carmichael, 
Carruthers, Clifford, Coote, Crcrar, d'Anjou, Descoteaux, Duncan, Elliott 
{Dundas), Elliott (Waterloo), Fafard, Fortier, Garland {Bow River), Grimmer, 
Hanson, Hatfield, Healy, Hodgins, Hudson, Hughes, Kellner, Ladner, Macdonald 
{Pictou), Mackinnon, Maclean (York), Miss Macphail, Messieurs McCrea, 
McKay, McMaster, McQuarrie, McTaggart, Malcohn, Marler, Maybee, Miller, 
Morin, Papineau, Rankin, Rhaume, lobb, St. Pre, Sales, Senn, Shaw, Sinclair 
(Oxford), Sinclair (Queens, P.E.I.), Speakman, Spencer, Steedsman, Stevens,, 
Stork, Tobin, Vien, Ward, Woods, Woodsworth,--60. 
Owing to the resignation of the Hon. Walter G. Mitchell, the Chairman of 
this Committee, as a Member of the House, it was necessary to select another 
Chairman, and on motion of hIr. Hughes, seconded by Mr. Spencer, Mr. Vien 
was unanimously selected, took the Chair and presided. 
A copy of a letter from His Honour the Speaker addressed to Mr. A. C. 
Campbell, Editor of Debates and Chief of Reporting Branch, with reference to 
the reporting of evidence taken before the Committees, was ordered to be printed 
in the proceedings of to-day. (Letter follows.) 
The Speaker 
March 27, 1924. 
DEAR Ma. CAMPBELL,----As yOU have asked for instructions with regard 
to your duties at this time, this letter is to confirm my verbal statements. 
As Chief of the Reporting Branch you are aware that great e.xlra 
expense has been involved in the reporting of Committees of the House, 
and it is my desire to limit such expense as closely as possible. The 
salaries of our Committee Reporting Staff and their assistants, together 
with fees paid to extra reporters, make a total for this service which is 
altogether too great. This is not to suggest any lack of attention to 
economy on your part except that, possibly, in the zeal of yourself and 
your staff to meet the wishes of the Chairman and members of every 
Committee, you may have given too wide an interpretation to instructions 
given to your predecessors years ago. 
Your present Committee Reporting Staff consists of a chief and two 
reporters, but the establishment fixed by the House allows for the employ- 
ment of another reporter. I understand that the vacant position has 
been advertised by the Civil Service Commission, and that the necessary 
examination is now in progress. It is my desire that the work of report- 
ing should be done by this staff as far as possible, and that only in case 
of urgent need should any extra assistance be engaged. Last session, as 
you will remember, one of your temporary reporters put in a bill for hotel 
expenses. This being new, I at first disallowed it, but afterwards con- 
sented to the payment in view of the smallness of the sum involved, and 
the special stress of work which seemed to compel the employment of the 
one concerned. But, as you will remember, I distinctly stated at the time 
that this instance was not to be drawn into a precedent. You will be 
guided accordingly in the engagement of extra reporters this session. 


14-15 GEORGE V, A. 1924 
My investigation of the matter leads me to believe that the reports 
made by your assistants are unduly extended. You are aware that the 
work of the Committee staff is confined to the reporting of evidence taken 
before Committees and that the reporting of discussions is not permitted. 
This is made very clear in the instructions given by the late Dr. Thomas 
B. Flint, then in charge of these matters as Clerk of the House; on 15th 
November, 1910, he wrote as follows:-- 
The members of the Staff of Official Stenographers to Commit- 
tees of the House are hereby instructed that their duties are limited 
to the reporting of evidence given before such committees. Beyond the 
mere noting of objections raised and the Chairman's ruling thereon, 
which is necessary to render the record intelligible, discussions in 
committee are not to be taken down in shorthand and transcribed. 
These instructions seem to me to apply at this time as well as when 
they were given. They are therefore renewed to-day. You will carry 
them out strictly. 

Yours faithfully, 

A. C. CAMPBELL, Esq., 
Editor of Debates and 
Chief of Reporting Branch, 
House of Commons. 

OAWA, 15 November, 1910. 
SIR,--Clerks of Committees and Stenographers are requested to note 
the following regulation :-- 
"The members of the Staff of Official Stenographers to Com- 
mittees of the House are hereby instructed that their duties are limitcd 
to the reporting of evidence given before such committees. Beyond 
the mere noting of objections raised and the Chairman's ruling there- 
on, which is necessary to render the record intelligible, discussions 
in committee are not to be taken down in shorthand and transcribed." 
I am, 
Yours truly, 
Clerk oJ the Hoarse o] Commons. 
Notice of Motion 
Mr. Spencer gave notice that on a subsequent date he would move the follow- 
ing resolution :-- 
"That the Bank Act be amended to provide that the moneys in the 
Circulation Fund shall first be aplied to the payment of the notes of a 
bank which has suspended payment and that the other assets of the bank 
be not applied to the payment of such notes until the moneys in the said 
fund are first exhausted ". 
Mr. John W. Pole, Chief National Bank Examiner, Washington, D.C., who 
was in attendance in obedience to summons, was called, sworn, gave evidence 
and retired. 
Committee adiourned at 1.15 o'clock p.m. to meet at 4 o'clock p.m. this day. 
Committee reassembled at 4 o'clock p.m. 
Mr. John W. Pole, continued his evidence and retired. 
Committee adiourned at 5.40 o'clock p.m. to meet at 11 o'clock a.m. to- 
morrow, Wednesday, May 21, 1924. 
Clerk to Committee. 

14-15 GEORGE V, A. 1924 
5. The Act is revised every ten years, and it would be detrimental to the 
stability of our financial institutions if a thorough revision were to take place 
every year. 
6. Tim Order of Reference limits us to recommending such amendments 
as would better protect the interests of the depositors. 
7. The purpose of the Central or Reserve Bank is not directly better to 
protect the depositors, but to afford greater rediscounting facilities. 
8. The difficulties which confront the depositors of the Home Bank appear 
to be due. not to the lack of discounting facilities, but on the contrary, to the 
great facility with which the Bank made advances on doubtful or valueless 
9. A Central or Reserve Bank could not have rediscounted these doubtful 
securities, and therefore would not have offered a greater elasticity, and the 
depositors would have received no additional security for their deposits. 
10. It has not been established to the satisfaction of the Chair that the 
organization and operation of some type of Central Bank would better protect 
the interests of depositors generally, and would prevent similar occurrences 
in the future. 
11. The matter of the establishment of a Central or Reserve Bank was 
fully investigated last year, and a considerable time was spent in collecting 
valuable information which has been printed and which is now available to 
I-Ionourable Members. 
12. It is possible that any change in the Bank Act more or less remotely 
affects the interests of the depositors. 
13. But should we not endeavour to suggest amendments most likely to 
receive the approval of Parliament, and primarily some method which would 
have a more certain, direct and decisive effect to increase the safety of the 
14. In my opinion, such were the instructions of the House. 
15. To do otherwise would turn this limited Reference into an unlimited 
one, involving possibly the revision of the whole Act. 
I6. In my humble judgment., I am obliged so to decide, and therefore to 
find that the subject-matter covered by Mr. Shaw's motion, namely the pur- 
pose, organization and operation of a Central or Reserve Bank, does not fall 
within the scope of the Order of Reference. 

Mr. Shaw moved, seconded by Mr. SpeNcer: 
"That the ruling of the Chair be not sustained." 
The question being put on Mr. Shaw's motion i.t was negatived on 
division; Yeas 12; :Nays 14. The names being called for, were taken down 
as follows:-- 
Yeas:--Messieurs Benoit, Coote, Elliott, Garland, Good, Hodgins, Maclean 
(York), Macphail (Miss), McMaster, Shaw, Spencer, Wrd.--12. 
:Nays: Messieurs Carmichael, Carruthers, Clifford, Duncan, Grimmer, 
Hanson, Hat.field, Hudson, Hughes, Kellner, McTaggart, Marler, Ryokman, 

Mr. Ladner moved, seconded by Mr. Good: 
"That a Report of this Committee be presented to the House 
requesting that the Order of Reference be enlged so as to embrace 
the study and consideration of the purpose, organization of some type 
of properly administered Central or Reserve Bank." 

14-15 GEORGE V, A. 1924 
On motion of IIr. McKay, econded !)3" Mr. McBride 
Ordered,--That the number of copies of the Reports of of this Committee 
to be sent to Members of the Committee be limited to a maximum of ten each." 
Mr. John W. Pole, Chief Examiner of National Banks, Washington, D.C., 
who was again in attendance, concluded his evidence and was discharged from 
further attendance, after the Chairman had expressed the pleasure of the Com- 
mittee in Mr. Pole appearing before them, to which Mr. Pole made suitable 
The Committee adjourned at 12.50 o'clock P.M. to meet again at 2 o'clock 
P.M. this day. 
The Committee reassembled at 2 o'clock P.M., the Chairman, Mr. Vien, 

llr. J. Skelton Williams, Financier, Richmond, U.S.A., who was in attend- 
ance in obedience to summons, was called, sworn, gave evidence and was dis- 
charged from further attendance after the Chairman had expressed the thanks 
of the Committee to Mr. Williams, and Mr. Williams' reply. 
The Committee adjourned at 5.10 o'clock P.M. to meet again at 11 o'clock 
A.M. on Tuesday, May 27, 1924. 
Clerk to Committee. 


TtrESDhY, May 27, 1924. 

The Committee met at 11 o'clock, a.m. 
The Chairman, Mr. Vien, presided. 

Present: Messieurs Carmichael, Carruthers, Coote, d'Anjou, Descoteaux, 
Elliott (Dundas)), Euler, Good, Grimmer, Harris, Healy, Hodgins, Hughes, 
Irvine, Maclean {York), McKay, McMaster, McQuarrie, McTaggart, Marler, 
Maybee, Morin, Papineau, Rankin, Robb, Ryckman, St. Pre, Shaw, Sinclair 
(Queens, P.E.I.), Speakman, Spencer, Stevens, Vien and Ward.--35. 
The Chairman read communications received from Mr. Robert Forke, M.P., 
enclosing letter from Messrs Campbell and Duke re the exchange charged on 
cheques, which letter was read into the minutes of evidence of to-day; from 
Mr. C. M. Gripton re Home Bank shareholders; from Mr. David Mills re 
bank inspection; from Mr. G. G. Henderson, Mayor of Fernie, B.C.; Association 
de Secours pour les Deposants de la " Home Bank" and Organization des 
Deposants de la Province de Quebec re Home Bank depositors; from Mr. 
W. 0. Sealey re post office savings banks and government inspection of banks. 
The Chairman reported that the sub-committee had not met for some 
time but that it had been arranged to have Dr. H. M. Tory appear before the 
Committee, to-morrow, Wednesday; that the Bankers' Association had requested 
that Mr. Charles E. Neill, acting President of the Association be heard. 
Committee decided to hear Mr. Neill on Friday next. 



Hon. Mr. Robb, acting Minister of Finance, stated to the Committee what 
the Government proposed re bank inspection legislation. 

Notice o] Motion 
Mr. Maclean gave notice that on a subsequent date he would move the 
"That in the opinion of this Committee the post office savings banks 
system be extended bY marking cheques against accounts in same 
at the office of deposit." 
By unanimous consent, on motion of Mr. McMaster, seconded by Mr. 
Ordered,--" That a report be presented to the House recommending that 
the Minutes of Proceedings and Evidence taken before the Select 
Special Committee on Agricultural Conditions of last session be 
referred to this Committee." (Presented to House, concurrence 
moved, concurred in, May 27, 1924. See pages 326 and 327, Votes 
and Proceedings.) 
Mr. George D. Finlayson, Superintendent of Insurance, Department of 
Finance, Ottawa, who was in attendance at the request of the Committee, was 
called, gave evidence and retired. 
The Committee adjourned at 1.05 o'clock, p.m., to meet at 11 o'clock, a.m., 
to-morrow, Wednesday, May 28th, 1924. 
Clerk to Committee. 

WEDNESDAY, May, 28, 1924. 
The Committee met at 11 o'clock a.m. 
The Chairman, Mr. Vien, presided. 
Present: Messieurs Benoit, Carmichael, Carruthers, Clifford, Coote, 
d'Anjou, Duncan, Elliott (Waterloo), Euler, Garland (Bow River), Good, 
Grimmer, Harris, Hodgins, Hughes, Irvine, Kellner, Maclean, (York), McKay, 
McMaster, McQuarrie, Maybee, Millar, Papineau, Ryckman, St. Pre, Sales, 
Senn, Shaw, Sinclair (Queens, P.E.I.), Speakman, Spencer, Steedsman, Stevens, 
Vien and Ward--36. 
The Chairman read a further Order of Reference as follows: 
"That the Minutes of Proceedings and Evidence taken before the Select Special Com- 
mittee on Agricultural Conditions last session be referred to this Committee." 

Notices o] Motion 

Mr. Hodgins gave notice that on a subsequent date he would move the 
"Resolved that Section 131 of the Bank Act be amended so that 
government deposits will not have precedence over private deposits." 


14-15 GEORGE V, A. 1924 
Thursday, June 5, 1924. 
The Committee met at 11 o'clock A.M. 
The Chairman, Mr. Vien, presided. 
Present :--Messieurs Benoit, Black (Halifax), Carmichael, Carruthers, 
Clifford, Coote, Descoteaux, Duncan, Elliott (Dundas), Euler, Garland {Bow 
River), German, Good, Harris, Hatfield, Healy, Irvine, Kellner, Ladner, Mac- 
lean (York}, Macphail (Miss), McCrea, McKay, McQuarrie, McTaggart, Mal- 
colm, Marler, Maybee, Miller, Morin, Robb, St. Pre, Sales, Shaw, Sinclair 
(Oxford), Spencer, Steedsman, Stevens, Vien and Ward--40. 
The Chairman read a letter he had received from Mr. J. W. Pole, Chief 
National Bank Examiner, Washington, D.C. 
The Chairman reported that, as instructed by the Committee, lie had 
ap?ointed a sub-committee of seven Members, Viz: Messieurs Coote, Euler, 
McKay, McMaster, Shaw, Stevens and Vien, to study with Dr. H. M. Tory 
the matter of emergency Rural Credit legislation and to report their finding 
to the Committee. 

Mr. McKay, for the sub-committee on Rural Credits, rcported progress. 

Notices oI Motion 

Mr. Coote raised the question of the completeness of the printed Reports 
of the Committee and gave notice that on a subsequcnt date he would move the 
"That this Committee request the permission of the House of Com- 
mons to print such of its discussions as it may deem expedient." 

Mr. Coote also gave notice that on a subsequent date he would move the 
"That in the opinion of this Committee, the Banking Act should 
be amended by adding a section which should provide for limitation of 
the amount of a loan which could be made by any Bank to any person, 
firm or corporation to an amount not exceeding 10 per cent of the paid 
up capital and reserve funds of said Bank." 

Mr. Robb, Acting Minister of Finance, gave notice that on a subse- 
quent date lie would move the following:- 
Bill Entitled "An Act to Amend The Bank Act" 
Section 56A of The Bank Act is repealed, and the following is 
substituted therefor: 


56A. The Minister shall appoint a person who has had training and 
experience in the business of banking who shall be charged with the per- 
formance of the duties hereinafter mentioned. Such person shall be 
designated "Inspector-General of Banks" and is hereinafter called the 
Inspector. . 

2. The Inspector shall hold office during good behaviour, but may 
be removed from office by the Governor-in-Council for misbehaviour or 
for incapacity, inability, or failure to perform his duties properly. 
3. If the Inspector is removed from office for any of such reasons, 
the Order-in-Council providing for such removal and all documents 
relating thereto shall be laid before Parliament within the first fifteen 
days of the next ensuing session. 
4. The Inspector while holding office shall not perform any service 
for compensation other than the service rendered by him under the pro- 
visions of this section. 
5. The Minister may appoint or employ, on the recommendation of 
the Deputy Minister of Finance and the Inspector, such persons with 
training and experience in the business of banking or auditing, and such 
clerical assistance, as may be deemed necessary to carry out and give 
effect to the provisions of this section. Persons so appointed or employed 
shall receive such salary or remuneration as may be fixed by the Minister. 
6. The Inspector, or other person appointed or employed under this 
section acting under his direction, shall at least once in each calendar 
year, and oftener if considered necessary by the Inspector or the Min- 
ister, examine and inquire into the affairs and business of each bank, and 
at the conclusion of the examination and enquiry a report thereon shall 
be made to the Minister. Such examination and enquiry shall be con- 
ducted at the chief office of the bank, or office of the General Manager 
if the office of the General Manager is at a place other than the Chief 
Office of the Bank, and it shall not be necessary for the Inspector or 
such other person to conduct any part of such examination at the 
Branches of the Bank unless in his judgment reports from the Branches 
or other evidence, or lack of reports or evidence, render an examination 
necessary at particular branches. 
7. A copy of all reports made by the auditors of a Bank to the 
General Manager and to the Directors under the next preceding section 
shall be transmitted or delivered to the Minister by the auditors at the 
same time as such reports are transmitted or delivered to the General 
Manager and Directors. 
8. The Inspector, or person acting under his direction, shall have a 
right of access to the books and accounts, documents, vouchers and 
securities of the bank, and shall be entitled to require and receive from 
the directors, officers and auditors of the bank such information and 
explanation as may be necessary for the performance of his duties. 
9. The Inspector, or person acting under his direction, shall have 
power to examine under oath the general manager and any of the other 
officers of the bank, and a general manager or other officer who refuses 
to submit to such examination commits an offence against this Act and 
is liable as provided in Section 157 of this Act. 
10. Whenever the Inspector is satisfied that a bank is insolvent he 
shall report fully on the bank's condition to the Minister and the Min- 
ister may, without waiting for the bank to suspend payment in specie 
or Dominion notes of any of its liabilities as they accrue, request the 
Association or the President of the Association to appoint a curator to 
supervise the affairs of such bank, and such request shall have the same 
effect as if the bank had suspended payment in specie or Dominion notes 
of any of its liabilities as they accrued, and a curator shall forthwith 
be appointed as provided in section 117 of this Act. 
11. The Inspector shall be paid a salary fixed by the Minister at 
a sum not exceeding Twenty-five thousand dollars per annum. 



WEDNESDAY, June 11, 1924. 
The Committee met at 11 o'clock A.M. 
Prcscnt:--Mcssieurs Benoit, Black (Halifax), Carmichael, Carruthers, Cas- 
grain, Clifford, Coote, Descoteatax, Elliott (Dundas), Euler, Fafard, Garland 
(Bow River}, Good, Grinmcr, Hanson, Hca!y, Hodgins, Hughes, Irvine, Kellner, 
Maclean (York), Macphail {Miss}, McKay, McMaster, McQuarrie, Marler, 
Maybee, St. 1)re, Sales, Shaw, Sinclair (Oxford}, Spencer, Ward and Woods 
Tim Clerk informed the Committee of the unavoidable absence of the 
On motion of Mr. McKay, seconded by Mr. Irvine, Mr. McMaster was 
selected as acting Chairman. 
The Acting Chairman read communications received from the Home Bank 
Depositors' Relief Committee, Toronto and the Clerk's replies thereto. 
Mr. McKay, for the sub-committee on Rural Credits, reported progress. 

Notices o] Motion 
Mr. Coote, for Mr. Ladner, gave notice that on a subsequent date he 
would move the following: 
"Resolvcd,--That this Committee recommend t 1)arliamcnt the 
establishment, in the chartered banks of Canada, of an additional class 
of savings accounts whereby all holders of deposits, who may place their 
money in such class of accounts, in any one bank or branch thereof, shall 
be protected against loss up to the sum of $3,000 by the establishment 
of a fund on an insurance basis, the premiums of which will be contributed 
by the depositor and the bank in such proportion as may be determined 
and that the Government work out the details and actuarial data neces- 
sary for the establishment of the said proposal and upon conference with 
the banking institutions of Canada, that legislation may be enacted to 
carry out the results of the said conference and such scheme as may be 

Notice having been given, on motion of Mr. McQuarrie, second by Mr. 
Ordered,--"That the Deputy Minister of Finance or some other 
official of the Department of Finance to be delegated by him, be requested 
to appear before this Committee and give evidence as to the present 
system or rediscounting and generally as to the relations and dealings 
between the Department of Finance and the Banks and the operation 
of the Bank Act." 

By unanimous consent, on motion of hlr. Coote, seconded by Mr. Marler: 
Ordered,---"That the motion before the House for concurrence in 
the Report of this Committee craving a widening of the Reference to 
enable consideration of the question of the establishment of a Central 
Bank, be moved next Tuesday." 

By unanimous consent, on motion of Mr. Coote seconded by Mr. Benoit: 
Ordered,--That the McKcown Report on the Home Bank be printed 
ass part of our minutes of proceedings of this day. (See page xli.) 

By unanimous consent, on motion of Mr. Maclean seconded by Mr. Spencer: 
Ordered,--That the Postmaster General or a representative of his 
Department be invited to appear before this Committee to explain the 
system of Post office savings banks. 

Notice of Motion 

Mr. Spencer gave notice that on a subsequent date he would move the 
following Resolution: 
"Resolved,--That an anaendment be added to Sec. 88 a S. S. 1 by 
inserting the words 'In an amount in excess of $1,000' after the word 'Act' 
in the second line thereof." 

Mr. George D. Finlayson, Superintendent of Insurance, Department of 
Finance, Ottawa, who was in attendance gave further evidence and retired. 

Mr. J. C. Saunders, Deputy Minister of Finance, who was in attendance, 
was called, gave evidence and retired. 

The Committee adjourned at 1.15 o'clock p.m. to meet again at 3.30 o'clock 
this day. 

The Committee reassembled at 3.30 o'clock p.m., the Chairman, Mr. Vien, 

Mr. J. C. Saunders continued his evidence and retired. 

On motion of Mr. Spencer, Notice of Motion No. 11, being a bill entitled 
"An Act to amend the Bank Act" standing in the name of the Acting Minister 
of Fnance was taken under consideration. 

Clause 1 being under consideration at 6.10 o'clock p.m., the Committee 
adjourned to meet again at 11 o'clock a.m. on Tuesday, June 17, 1924. 

Cleric to Committee. 


14-15 GEORGE V, A. 1924 

TUESDAY, June 17, 1924. 
The Committee met at 11 o'clock a.m. 

The Chairman, Mr. Vien, presided. 

Present: Messieurs Benoit, Carmichael, Carruthers, Clifford, Coote, Des- 
coteaux, Duncan, Elliott (Dundas), Garland (Bow River), Good, Grimmer, 
Hanson, Healy, ttodgins, Hughes, Irvine, Kellner, Maclean (York), Macphail 
(Miss), McCrea, McKay, McQuarrie, Marler, Maybee, Miller, Papineau, St. 
Pre, Sales, Sinclair (Queens, P.E.I.), Spencer, Steedsman, Tobin, Vien, Woods 
and Woodsworth--35. 

The Chairman read to the Committee a letter he had received from Mrs. 
Mary Forsythe, Coal Creek, B.C., with reference to the Home Bank and his 
reply thereto. 

The Chairman read to the Comittee the correspondence between the Home 
Bank Depositors' Relief Committee of Toronto and the Chairman and Clerk of 
this Committee. The correspondence was ordered to be placed in the Minutes 
of Proceedings of to-day and is as follows :-- 



TOONTO, June 5th, 1924. 
Lieut.-Col. Thos. A. Vm, K.C., M.P., 
Chairman Banking Committee, Ottawa. 
The Executive Committee of the Home Bank Depositors Association desire 
an opportunity to lay the facts of this matter before your committee next 
Thursday or on Tuesday, Wednesday or Thursday of the week following the 
earlier the date the better. We would like time for about three speakers to 
be heard. Would be obliged for an early a reply as possible letter following. 
(Sgd.) I.E. WELDON, 
Sec'y. Home Bank Depositors' Reliel Committee. 




OAWA, Ont., June 14, 1924. 
W. T. J. LEE, Esq., " 
Chairman, Home Bank Depositors' Relief Ass'n., 
8 King St. West, 
I notice in Citizen this morning reference to your declarations of last night 
that no reply had been received to the message asking if the Banking and 
Commerce Committee would receive a deputation representing the Depositors. 
Kindly enquire from Mr. Weldon your Secretary if he did not receive telegram 
and letter dated June sixth and telegram June eleventh. We have his acknowledg- 
ment dated June Twelfth. Kindly correct impression given to the press that 
Committee did not answer your message. 


Office of the Chairman. 
OTTAWA, Ont., June 14th, 1924. 
W. J. T. LEE, Esq., 
Chairman, Home Bank Depositors' Relief Ass'n, 
8 King Street, West, Toronto, Ont. 
Dear Sir,--I beg to enclose, herewith, confirmation of my telegram of 
to-day. It is with some surprise that I have read in the Press this morning 
that no reply had been received to the message asking if the Banking and 
Commerce Committee would receive a deputation representing all the depositors. 
You will find by the copy of the correspondence exchanged and which I beg to 
stttach hereto, that the Committee has immediately answered your request by 
wire and letter. 
May I further state that the Committee has deemed it advisable to peruse 
Mr. Justice McKeown's Report before it receives you so as to be able better to 
appreciate your representations when your delegation is received. 
I may state that we shall endeavour to fix the 19th or 20th to receive your 
delegation. The Committee will sit on Tuesday the 17th inst. and will then fix 
a date and you shall be informed immediately. 
Yours truly, 



TORONTO, June 16-24 
Lieut.-Col. Thomas Vmv, K.C., M.P., 
Just received your wire stop made no such declaration to press stop some 
mis.take stop Explain to Committee stop will be in Ottawa Tuesday morning 
and will see you on arrival. 
W. T. J. LEE. 


14-15 GEORGE V, A. 1924 



TORONTO, ONT., June 16, 1924. 
Lieut. Col. Thomas Vien, K.C., M.P., 
Have been away from office owing illness past week. Just learned of news- 
paper report Lee interview stating no reply received our message asking inter- 
view Banking and Commerce Committee. Cannot understand this report which 
we greatly regret. All our communicati.ons to you and Banking and Com- 
merce Committee have received prompt and courteous reply. Will use every 
effort to correct false impression. 

Mr. W. T. J. Lee, Chairman, Home Bank Depositors' Relief Association, 
Toronto, who was in attendance addressed the Committee. 

The Chairnaan reported that, as instructed by the Committee, he had 
appointed a sub-committee of five members, viz: Messieurs Hanson, Irvine, 
Malcolm, Marler and Vien, for the purpose of studying the interim Report on 
the Home Bank submitted by Mr. Justice McKeown and reporting back to this 
Committee their recommendations thereon for consideration. 

The Chairman, for the sub-committee, reported that they hd met this 
morning and wished to report progress and asked leave to sit again. 
Mr. Spencer moved, seconded by Mr. Healy: 
"That the sub-committee on the McKeown Report be enlarged to seven 
Discussion followed. 
The question being put it was passed in the affirmative. 

By unanimous consent, .on motion of Mr. Irvine, seconded by Mr. Maclean. 
Ordered,--"That this Committee hear a deputation of the Home Bank 
depositors a week from to-morrow, Wednesday, June 25, 1924; and that 
the sub-committee take congnizance simply of the McKeown Report 
and do not hear witnesses." 

Notice o] Motion 
Mr. Hanson gave notice that on a subsequent date he would move the 
'"That all honourable members be requested to give notice of pro- 
posed Motions on or before Thursday, June 19, 1924; and that no notices 
of motion be received by the Committee thereafter." 


Mr. Coote gave notice that on a subsequent date he would move the follow- 

"That Section 61, sub-section 3-a, be struck out, and the following 
substituted therefor: 
'50 per cent of the amount of the unimpaired paid-up capital of the 
bank, and'." 

14-15 GEORGE V, A. 1924 
Previous notice having been given and on motion of Mr. Hanson, seconded 
by Mr. Maclean: 
Ordered, "That all honourable members be requested to give notice 
of proposed motions on or before Tuesday, June 24, 1924; and that no 
notice of motion be received by the Committee thereafter unless by a 
majority vote of two thirds of the Members of the Committee present." 
The Committee then took under consideration the Notice of Motion 
on the order paper standing in the name of the Acting Minister of Finance 
and entituled "Bill entituled: 'An Act to amend the Bank Act.' Section 56A 
of the Bank Act is repealed, and the following substituted therefor. Inspection." 
Clause 1 read, amended and agreed to as. follows:-- 
1. "The Governor in Council on the recommendation of the Minister 
s'hall appoint a person who in his opinion has had proper training and 
experience who shall be charged with the performance of the duties 
hereinafter mentioned. Such person shall be designated 'Inspector Gen- 
eral of Banks.' The Minister may direct some other such person to 
temporarily perform the duties of the inspector should the inspector, by 
reason of illness or other contingency, be unable to perform such duties." 
Clause 2 read and agreed to as follows:-- 
2. The Inspector shall hold office during good behaviour, but may 
be removed from office by the Governor in Council for misbehaviour 
or incapacity, inability, or failure to perform his duties properly. 
Claus,e 3 read, amended and agreed to as follows:-- 
3. If the Inspector is removed from office for any of uch reasons 
the Order in Council providing for such removal and documents relating 
thereto shall be laid before Parliament within the first fifteen days of 
the next ensuing session. 
Clause 4 read and agreed to as follows:-- 
4. The Inspector while holding office shall not perform any service 
for compensation other than the service rendered by him under the pro- 
visions of this section. 
Clause 5 read, amended and agreed to as follows:-- 
5. "The Minister may appoint or employ on the recommendation 
of the Deputy Minister of Finance and the inspector, such persons with 
training and experience and such clerical assistants as may be deemed 
necessary to carry out and give effect to the provisions of this section. 
Persons so appoiated or employed shall receive such salary or remun- 
eration as may be fixed by the Minister." 
Clause 6 read. Clause stands for further consideration. 
Clause 7 read and agreed to as follows:-- 
7. A copy of all reports made by the auditors of a Bank to the 
General Manager and to the Directors under the next preceding section 
shall be transmitted or delivered to the Minister by the auditors at the 
same time as such reports are transmitted or delivered to the General 
Manager and Directors. 
Clause 8 read, and agreed to as follows:-- 
8. The Inspector, or person acting under his direction, shall have a 
right of access to the books and accounts, documents, vouchers and 
securities of the bank, and shall be entitled to require and receive from 
the directors, officers and auditors of the bank such information and 
explanation as he may deem necessary for the performance of his duties. 

14-15 GEORGE V, A. 1924 
Previot, s notice having been given, Mr. Maclean moved: 
"That in the opinion of this Committee the Post Office Savings 
Banks' system of Canada be extended by marking cheques against 
accounts in same at the office of deposit." 
Tim Chairman ruled as follows: 
"I have to rule that the Order of eference to this Committee empowers us 
to consider the provisions of the Bank Act; the Order reads that the Committee 
' should be instructed to consider the provisions of the Bank Act with a view to 
recommending such amendments to the Act as will better protect he interests 
of depositors generally.' Mr. Maclean's motion would be in the form of an 
amendment to the Act governing the Post Office Department; therefore I do not 
believe that it falls within the scope of the Order of Reference to this Com- 
The Chairnan's ruling was sustained. 

Notice of Motion 
Mr. Maclean gave notice that on a subsequent date he would move the 
following, the same being a substitution for a previous :Notice of Motion now 
on the order paper: 
"That the Ontario Provincial Government be asked to send a repre- 
sentative of their Provincial Savings Branch to give this Committee 
some idea of the business they are doing in that Province; and that the 
Postmaster General of Canada be requested to attend before this 
:Notice of Motion on the order paper, standing in the name of the Acting 
Minister of Finance and entituled " Bill entituled 'An Act to amend the 
Bank Act.' Section 56A of the Bank Act is repealed, and the following sub- 
stituted therefor. Inspection." again under consideration. 
Clause 13 read, as follows: 
13. All persons appointed under this section shall be officers of the 
Departmcnt of Finance, but the provisions of the Civil Service Act, 1918, 
shall not apply to such persons. 
Mr. Shaw moved that the clause be amended by striking out the last three 
words, "to such persons," and substituting therefor the word.% "except as to 
necessary clerical assistance." 
The question being put on Mr. Shaw's motion, it was negatived on division. 
yeas 10, nays 27. 
Clause 13 was agreed to as previously read. 
Clause 6 read as follows: 
6. The Inspector shall at least once in each calendar year and oftener 
if considered necessary make or cause to be made an examination and 
inquiry into the .affairs and business of each bank, and shall, at the con- 
clusion of such examination and inquiry, report thereon to the Minister. 
Such examination and inquiry shall be conducted at the chief office of 
the bank, or office of the General Manager if the office of the General 
Manager is at a place other than the chief office of the bank, and it 
shall not be necessary to conduct any part of such examination at 
branches of the bank unless in the }udgment of the Inspector an examina- 
tion of any one or more of such branches is necessary. 


14-15 GEORGE V, A. 1924 
omitted to be done which is hereby required to be done, or by reason of 
any order or direction of the Governor-in-Council or of the Minister 
in the execution or administration of the powers or any of them 
by this section conferred, or by reason of any failure or omission on 
the part of Governor-in-Council or of the Minister or of the Inspector, 
or of any officer or employee of the Government to execute or discharge 
any power, authority or duty thereunder, or otherwise by reason of any 
default, negligence, mistake, error or omission in the administration or 
discharge of the powers or duties which in any circumstances are by this 
section intended or authori,ed to be executed or performed; and no such 
payment, damages, compensation or indemnity, nor any claim therefor, 
shall in any case be authori,ed, paid or entertained by the Government. 
Clause 17 read and agreed to, as follows:-- 
17. This section shall come into force on the first day of October, 
nineteen hundred and twenty-four, but it shall not be incumbent upon 
the Inspector to examine all of the banks under the section during the 
calendar year one thousand nine hundred and twenty-four. 
On motion of Mr. McKay, seconded by Mr. Maclean 
Ordered,--That a Report be presented to the House reading as follows:J 
" That, pursuant to the Order of Reference from this House of the 
31st of March, 1924, Your Committee in view of the failure of the Home 
Bank, have considered the provisions of the Bank Act with a view to 
recommending such amendments to the Act as would better protect the 
interests of bank depositors generally, and would prevent similar 
occurrences in the future: 
And your committee are of the opinion that it is expedient to bring 
in a measure to amend the Bank Act and they therefore recommend 
that the said Act be amended as follows: 
That Section 56A of the Bank Act be repealed, and the following 
substitutcd therefor: 
56A. 1. "The Governor in Council on the recommendation of the 
Minister shall appoint a person who in his opinion has had proper 
training and experience who shall be charged with the performance of 
the duties hereinaftcr mentioned. Such person shall be designated 
"Inspector General of Banks." The Minister may direct some other such 
person to temporarily perform the duties of the inspector should the 
inspector, by reason of illness or other contingency, be unable to per- 
form such duties." 
2. The Inspector shall hold office during good behaviour, but may 
be removed from office by the Governor in Council for misbehaviour or 
incapacity, inability, or failure to perform his duties properly. 
3. If the Inspector is removed from office for any such reason the 
order in council providing for such removal and documents relating 
thereto shall be laid before parliament within the first fifteen days of the 
next ensuing session. 
4. The Inspector while holding office shall not perform any service 
for compensation other than the service rendered by him under the 
provisions of this section. 
5. " The Minister may appoint or employ on the recommendation 
of the Deputy Minister of Finance and the inspector, such persons with 
training and experience and such clerical assistants a.s may be deemed 

prevailed, the Government, at my instance, placed itself behind the 
banks of Canada and gave public assurance that it would loan them 
such sums as they might require to meet the conditions of the War, and 
would take all further steps necessary to safeguard the financial situa- 
tion during its continuance;" (page 359) and further: "The action I took 
was in my discretion; in exercising his discretion, a Minister must have 
regards to conditions, because conditions have a direct bearing upon 
the consequences attendant on his action to the bank and the general 
situation. If you make a mistake in putting in an auditor, in peace time 
the consequence may be a run producing little effect upon the bank; if 
in war time, you may bring down the bank, and in addition you may 
cause an unspeakable calamity to the country." (page 743.) 
Your Sub-Committee is not called upon to question the manner in 
which Sir Thomas White made use of the powers given him, or whether 
he exercised his discretion correctly or otherwise. 
Your Sub-Committee consider that the facts brought out in the 
ILterim Report submitted by Mr. Chief Justice McKeown, and the 
evidence therein referred to, establish that the depositors of the Home 
Bank have a moral claim in equity for compensation by the country on 
account of any loss they may suffer by reason of the failure of the Home 
Your Sub-Committee are also of the opinion that the Standing Com- 
mittee on Banking and Commerce should recommend to the House of 
Commons that the Government take into immediate consideration the 
desirability of paying to the said depositors the compensation mentioned 
in the foregoing paragraph, as soon as possible. 
Acting Chairman. 
Mr. Marler moved, seconded by Mr. Spencer 
"That the Report of the sub-committee as read, be adopted." 
Discussion followed. 

By consent, Mr. Marler moved, seconded by Mr. Spencer, 
"That the repor of the sub-committee be amended by expunging 
the last paragraph of their report." 
The question being put on the amendment, it was agreed to in the affirma- 
tive, on division: Yeas: 29, :Nays: 9. 
Discussion followed. 
The question being put on the main motion it was agreed to in the 
affirmative on division: Yeas, 27; Nays, 11, and the Chairman ordered to 
present a report to the House this afternoon embodying the principles of the 
report f the ub-committee as agreed to by this Committee. (Report (No. 11) 
appears on page xii.) 
The Committee adjourned at 1.45 o'clock p.m. to meet at 11 o'clock a.m. 
to-morrow, Wednesday, July 2, 1924. 
Clerk o] Committee. 


14-15 GEORGE V, A. 1924 

W)NSDAY, July 2, 1924. 
The Committee met at 11 o'clock a.m. 

The Chairman, Mr. Vien, presided. 

Present: Messieurs: Baxter, Benoit, Bird, Black (Halifax), Bristol, 
Cahill, Carmichael, Carruthers, Casgrain, Chevrier, Clifford, Coote, Crerar, 
Desaulniers, Descoteaux, Duncan, Elliott (Dundas), Elliott (Waterloo), Euler, 
Garland IBow River), Good, Grimmer, Guthrie, Hanson, Harris, Healy, 
Hodgins, Hughes, Irvine, Jacobs, Kellner, Ladner, McKinnon, Maclean (York), 
McKay, McMaster, McQuarrie, McTaggart, Malcolm, Marler, Maybee, Mew- 
burn, Miller, Morin, Papineau, Power, Robb, Robichaud, Robitaille, St. Pere, 
Senn, Shaw, Sinclair {Oxford}, Sinclair (Queens, P.E.I.), Spencer, Steedsman, 
Stevens, Vien, Ward, Woods, Woodsworth.--61. 

Mr. McKay, Chairman of the Sub-Committee on "Rural Credits" and 
"Bankruptcy", reported for the sub-committee, as follows:-- 



Your Committee on Emergency Legislation in Respect to Rural Credits 
beg leave to report as follows:- 
(1) That any plan devised for the purpose of giving Federal aid to the 
provinces should be applicable to all of Canada; 
(2) That at the present nmment, in only six of the nine provinces of 
Canada are there Provincial Government organizations, through which Federal 
aid could be made available; 
(3) That it would not be possible to create new machinery for utilizing 
such aid covering the whole of Canada in time to be effective this year; 
(4) In view of the foregoing, it would appear wiser for the Committee to 
concentrate its attention upon the possibility of the development of a more 
general scheme of a permanent character. 
M. McKAY, 
Chairman, Sub-Committee. 

Your sub-committee also begs to recommend that the " Bankruptcy Act" 
be amended as follows: 

1. This Act may be cited as "The Bankruptcy Act Amendment Act, 1924." 
2. The Bankruptcy Act is amended by inserting after section 8 B. thereof 
the following section: 
"8C (1) Notwithstanding anything contained in this Act, if the 
Lieutenant-Governor in Council of any province has authorized any 
officer of the provincial government, charged under a provincial statute 

14-15 GEORGE V, A. 1924. 
No. 1. Mr. Ladner moved: 
" That this Committee recommend to Parliament the elimination 
from the Bank Act 1923, of all provisions relating to double liability of 
shareholders and that accordingly section 125 of the said Act and or, her 
sections relating to question of double liability be repealed." 
Discussion followed. Motion dropped by consent. 

No. 2. Mr. Ladner moved: 

"That in the opinion of this Committee the Bank Act should be 
amended in order to provide for the establishment in the chartered banks 
of Canada of a special savings account or other class of accounts for 
savings deposits in addition to those now existing, whereby all holders of 
deposits in such special savings account in any one bank, or branch there- 
of, shall be protected or guaranteed against loss up to the sum of 
$3,000 according to a similar principle as that now provided for in 
sections 62 to 69 inclusive of the Bank Act relating to the protection of 
bank notes bv the establishment of a fund known as the Bank Circulation 
Redemption ?und, or that such special savings account be established in 
accordance with some other principle of insurance the premium of which 
will be paid by the depositors or the chartered banks of Canada, or both, 
or in such other manner as the committee may consider capable of giving 
reasonable protection to depositors of money in savings accounts in such 
sums as the committee may determine." 
Discussion followed. Motion dropped by consent. 

No. 4. Mr. Hodgins moved: 
" Resolved that Section 131 of the Bank Act be amended so that 
Government deposits will not have precedence over private deposits." 
Discussion followed. 

Mr. Spencer moved, seconded by Mr. Garland, that the said motion be 
amended by inserting the word " federal " between the words " that" and 
" government" in the second line there)f. 
Discussion followed. 

The question being put on the amendment it was negatived on division: Yeas 
5; Nays 22. 
Discussion followed. 

The question being put on the. main motion it was negatived on division: 
Yeas 15; Nays 18. 

No. 5. Mr. Coote moved: 
" That in the opinion of this Committee, legislation should be brought 
down this session to provide for the establishment of long-term rurai 
By consent, the motion stands to be considered in connection with the 
report of the sub-committee on " Rural CreSits." 

which would be all that would be left to the intermediate Banks, with the 
full knowledge that the large accounts were all safely theirs through the 
limitation of loans imposed by the amendment." 
By consent, the motion was withdrawn. 

No. 10--hIr. Ladner moved: 
"Resolved that this, Committee recommend to Parliament the estab- 
lishment, in the character banks of Canada, of an additional class of 
savings accounts whereby all holders of deposits, who may place their 
money in such class of accounts, in any one bank or branch thereof, shall 
be protected against loss up to, the um of $3,000 by the establishment of 
a fund on an insurance basis, the premiums of which will be contributed 
by the depositor and the bank in such proportion as may be determined 
and that the Government work out the details and actuarial data necessary 
for the establishment of the said proposal and upon conference with the 
banking institutions of Canada, that legislation may be enacted to carry 
out the results of the said conference and such schenc as may be evolved." 
By consent the motion was amended by adding the words "if practicable" 
after the word "establishment" in the second line. 
Discussion followed. 
The motion stands for further consideration. 

No. ll--Mr. Spencer moved: 
"Resolved that an amendment be added to Section 88a S. S. 1 by 
inserting the words 'In an amount in excess of $1,000 after the word 'Act' 
in the second line thereof." 
Discussion followed. By consent the motion was withdrawn. 

The Committee adjourned at 1.05 o'clock p.m. to meet at 11 o'clock a.m. 
to-morrow, Friday, July 4, 1924. 
Clerk of Committee. 

FRIDAY, July 4. 1924 
The Comnittee met at 11 o'clock a.m. 

The Chairman, Mr. Vien, Presided. 

Present: Messieurs: Benoit, Bird, Black (Halifax), Bristol, Carmichael, 
Carruthers, Casgrain, Chevrier, Clifford, Coote, Crerar, d'Anjou, Desaulniers, 
Descoteaux, Duncan, Elliott (Dundas), Elliott (Waterloo), Euler, Fafard, Gar- 
land (Bow River), Good, Grimmer, Hanson, Harris, Hatfield, Healy, Hod- 
gins, Hughes, Irvine, Kellner, Ladner, McBride, Macdonald (Pictou), Mackin- 
non, Maclean (York), McCrea, McKay, McMaster, McQuarrie, McTaggart, 
Malcolm, Marler, Maybee, Morin, Papineau, Power, Rankin, Rheaume, Robit- 
aille, St. Pere, Sales. Shaw, Sinclair (Oxford), Sinclair (Queens, P.E.I.), Spencer, 
Steedsman, Tobin, Ward, Woods, Woodsworth.--60. 



No. 16--Mr. Shaw moved. 
Section 125 of the Bank Act is hereby repealed and the following 
is substituted therefor:-- 
125. In the event of the property and assets of the bank being insuf- 
ficient to pay its debts aand liabilities, or in the event that the paid-up 
capital of the bank has been impaired by losses, or by the payment of 
dividends or by the payment of bonus or otherwise, each shareholder of 
the bank shall be liable for such deficiency or for such impairment to an 
amount equal to the par value of the shares held by him in addition to 
any amount not paid up on such shares. 
(2) " Shareholders," within the meaning of this section, shall include 
an undisclosed principal and, to the extent of his interest, a cestui que 
trust, on whose behalf or for whose benefit shares in the capital stock of 
the bank are held. 
(3) Subject to the two sub-sections last preceding, if the inspector 
at any time by inspection or otherwise ascertains that the paid-up capi- 
tal of a bank has become impaired by losses or by the payment of divi- 
dends, or by the payment of bonus, or otherwise, he shall forthwith, upon 
receiving the approval of the Minister, by a direction in writing addressed 
to the General Manager, order such bank to restore the amount of such 
impairment in the paid-up capital by making a call upon the sharehold- 
ers pro rata to the amount of capital held by each; if such bank neglects 
within four months after the receipt of such notice to comply with the 
order of the inspector, the Minister may exercise the powers conferred 
upon him by sub-section 10 of section 56-A of this Act; provided, how- 
ever, that if all the subscribed stock has been fully paid up, the Directors 
of the bank shall, subject to the provisions of this section, have, possess 
and exercise the same powers with respect to the making of calls on shares 
and the recovery and enforcement of such calls whether by suit, forfeiture, 
sale or otherwise, as they now have, possess and exercise under this Act, 
for the making, recovery and enforcement of calls on unpaid stock. 

Discussion followed. 

The motion being put it was negatived on division: The names being called 
for were taken down as follows:- 
YEAS: Benoit, Coote, Elliott (Dundas), Garland (Bow River), Good, Hod- 
gins, Hughes, Irvine, Kellner, Maclean (York), Shaw, Spencer, Woods, Woods- 
:Nvs: Black {Halifax), Bristol, Carmichael. Carruthers, Casgrain, Fafard, 
Harris, Healy, McBride, Mackinnon, hlcKay, McMaster. McTaggart, Marler, 
Morin, Papineau, R,heaume, Robitaille, St. Pere, Sales, Steedsman--21. 

"The Guaranty of Bank Deposits (Submitted as Term Paper in 
"Advanced Bankin, g," Pol. Econ. 31 Spring Quarter, 1924) University of 
Chicago," was filed as exhibit :No. 24, and the Foreword and Conclusions of 
same were ordered to be printed as an appendix to the Minutes of Proceedings 
(See page cxxxvii.) 

The Committee adjourned at 1.10 o'clock p.m. to meet at ll o'clock a.m. 
on Tuesday, July 8, 1924. 
CLeric ol Committee. 

"Motions on the Order Paper" having been called. 
No. 5, Mr. Coote moved: 
" That in the opinion of this Committee, legislation, should be 
brought down this session to provide for the establishment of long-term 
rural credits." 
Discussion followed. 
The question being put it was negatived on division: Yeas 4; Nays 19. 
Mr. Spencer raised the question as to the probable date of the Home Bank 
Debate in the House. 
The Chairman informed the Committee that this Debate could not possibly 
be reached before Tuesday or Wednesday of next week. 

No. 12, Mr. Coote moved: 
" That Section 61, Subsection 3-A, be struck out and the following 
substituted therefor: ' 50 per cen of the amount of the unimpaired paid- 
up capital of the bank, and'." 
Discussion followed. 
By consent, the motion was withdrawn. 

No. 13, Mr. Coote moved: 
" That this Committee is of the opinion that the Bank Act should 
be amended to provide that thc printing and issuing of bank notes should 
be under the control of the Department of Finance, and that regulations 
covering the printing and issuing of said notes should be in the hands of 
the Department of Finance instead of the Bankers' Association." 
Discussion followed. 
The Committee was addressed by Mr. H. T. Ross, Secretary, Canadian 
Bankers' Association. who also answered a number of questions as to the effect 
of this motion, if passed. 
The question being put, it was negatived on division: Yes., 10; Nays, 29. 

No. 18, Mr. Garland moved: 
"That Section 76 of the Bank Act be amended by adding thereto 
Subsection (g) to Subsection 2 of said section, as follows:- 
" No bank shall accept deposits payable after notice to a total 
amount in excess of six times the paid-up capital of the bank provided 
this clause shall become operative October 1, 1925." 
Discussion followed. 
The question being put it was negatived on division: Yeas, 4; "Nays, 34. 

No. 19, Mr. Coote moved: 
" That Section 13 of the Bank Act be amended by striking out the 
words 'five hundred' in the first line thereof; and substituting therefor 
the word ' fifty.' And by striking out the words ' two hundred and fifty ' 
in the eighth line thereof and stbstituting the words therefor 'twenty- 
five.' ' 
Discussion followed. 
The question being put it was negatived on division: Yeas, 11 ; Nays, 29. 



After consideration of a Private Bill on the Order Paper-- 
On motion of Mr. MeKay, seconded by Mr. Morin, 
Ordered,--" That the Tory Report on Agricultural Credit be printed 
as an appendix to the Minutes of Proceedings of this Committee." 
(See page xli.) 

On motion of Mr. McKay, seconded by Mr. Hatfield, 
Ordercd,--That the Chairman be instructed to present the following 
as the Sixteenth Report of this Connnittee. 
" Your Committee have had under consideration the various matters 
referred to them by the Order of Reference, and have reported on same 
from time to time. 
Your Committee, in addition to numerous meetings of tile sub-com- 
mittees, have held thirty-nine .-_ittings on twenty-seven separate days, 
have heard the evidence of ten witnesses, and have had twenty-three 
exhibits filed with them. 
Your Committee submit herewith for the information of the House 
a printed copy of their proceedings, the evidence given before the 
Committee, and also certain documents submitted to tile Committee as 
Exhibits but not contained within tile proceedings. 
Your Committee recommend that tile Order of Reference, Reports, 
Proceedings, and tile Evidence given before the Committee, together with 
a suitable index to be prepared by tile Clerk of the Committee, be printed 
as an appendix to the Journals of the House of tile present Session. and 
for distribution, and that Rule 74 be suspended with reference thereto." 
(Presented to House, Thursday, July 10. 1924. See page 517, Votes and 
Proceedings. Concurrence moved, concurred in, Friday, July 11, 1924. 
See page 542, Votes and Proceedings.} 

On motion of Mr. Benoit the Committee adjourned, to meet at tile Call 
of the Chair. 
Clerk ol Committee. 

FRIDAY, July ll. 1924. 
The Committee met at 11 o'clock, a.m. Tile Chairman, Mr. Vien, presided. 
Present: Messieurs: Benoit, Chevrier, Clifford, Coote, Descoteaux, Elliott 
(Waterloo), Fortier. Garland (Bow River}, Good, Hatficld, Hodgins. Irvine, 
Jacobs, McBride, hIaclean (York}, McKay, McMaster, Millar, Morin. Sales, 
Shaw, Spencer, Steedsman, Vien, Ward, 'oods, Woodsworth.--27. 

Mr. McKay, Chairman of the sub-comlnittee on " Rural Credits," moved 
that the Report of the sub-committee on " Bankruptcy," be adopted. 

Discussion followed. 

On motion of Mr. McKay seconded by Mr. hIcMaster, the Chairman 
was unanimously instructed to present a Report to the House embodying the 
Report of the sub-committee on " Bankruptcy," as amended, as follows:-- 

14-15 GEORGE V APPENDIX No. 1 A. 1924. 


THURSDAY, May 13, 1924. 
The Select Standing Committee on Banking and Commerce met at 11.00 
o'clock a.m. Mr. Vien presiding. 
The SECRETARY: The Chairman of the Committee I-Ion. Mr. Mitchell, is 
unable to be present this morning and I would ask the members of the Com- 
mittee to nominate a vice-chairman. 
Mr. ToIN: I propose that Mr. Vien, Lotbiniere, take the Chair. 
Mr. Vien having taken the Chair. 
The VIcE-CHAIRMAN: The first order of business is "Communications." 
I would ask the Secretary to read the communications. 
The SECRETARY: The following telegram has been received. 
"Cleveland, Ohio, 
I-Ion. W. C. Good, 
"Your telegram was repeated to me from New York. I shall be 
glad to appear before your Committee if they want me and shall try t 
arrange my time to suit their convenience. I can be reached by tele- 
graph until Monday, May Twelfth at Hotel Cleveland, Cleveland Ohio. 
After that date I uggest you telegraph me care American Exchange 
National Bank, New York City, and message will be repeated to me as 
my movements for next month are uncertain. 
(Sgd.) William P. Malburn." 
There has also been received the following telegram: 
"Washington, D.C., 
I-Ion. W. G. Mitchell. 
"Chairman House of Commons, Banking Committee. 
Replying your telegram seventh would suggest E. W. Stearns comp- 
troller's office. Sherrill Smith, Vice President Chase National Bank, New 
York, or J. W. Pole, Chief National Bank examiner under comptroller 
of the Currency. 
(Sgd.) A. W. Mellon." 
That is a reply to a telegram which Mr. Mitchell sent asking for suggested 
names of witnesses in regard to the matter of bank examination or inspection. 
Perhaps Mr. Good has received other telegrams. 
Mr. GOOD: Yes, Mr. Chairman, I received replies from practically all the 
other parties to whom I sent telegrams on instructions of the sub-committee. 
I thought that the secretary would read them also. I read one at the last 
meeting of the Committee from Mr. Williams, who signified his willingness to 
come. I also heard from Mr. Maclean, of Portland, whose name was men- 
tioned, but he replies that he will find it difficult, if not impossible to be present. 
The other party was Mr. Stearns. He wired that he would be available. There 
was only one other party suggested and we do not know his address. I do not 
think that the secretary has heard from him yet. 

Mr. SHAw: Before the matter of calling the witnesses is proceeded with. 
I may point out that there is a notice of motion sanding in my name. It 
appears on the back of the notice calling this meeting, and perhaps it would be 
advisable to dispose of that in order that we may proceed with other business, 
if that is agreeable to the Committee. 
The VIcE-CH.-IRM.-N: The nptice of motion standing in Mr. Shaw's name 
is as follows:- 
"That this Committee is of opinion that the purpose, organization 
and operation of some typc of properly administered Central or Reserve 
Bank falls within the scope of the Reference, and that the Sub-Com- 
mittee is hereby instructed to suggest to this Committee the names of 
competent witnesses to give evidence on this subject." 
The question is open for discussion. 
Discussion followed. 
The rICE-CH.-IRM.-N: Gentlemen, I am only the acting Chairman of the 
Committee and I think, so as not to interfcrc with the proceedings I will 
reserxe my decision until we sit again, or the Chairman, if he is here, will 
render the decision. This is on the questin of whether the purpose, organiza- 
tion and operation of some type of properly administered central or reserve 
bank falls within the scope of the reference. 
Any other motions, gentlemen? I understand that Mr. Good is interested 
in the calling of the witnesses, and I would like him, or any other member of 
the Committee to say which witness should be examined first. 
Mr. [RVINE: I would suggest that it would be wise to instruct the sub- 
committee to consider which of those witnesses to whom we have wired shouhi 
be called. 
Mr. GooD: To facilitate matters I would move that the sub-committee be 
asked to suggest or recommend the names of suitable witnesses among those 
who have been communicated with at our next sitting. 
Mr. IRVINE: I will second that. 
Mr. GOOD: Unless the Committee thinks it desirable to call them im- 
mediately, it might be better to have the sub-committee to consider the matter 
and make a recommendation. 
The VIcE-CH.a-IRM.a-N: Your suggestion is that the names of the witnesses 
available be referred to the sub-committee so that they may choose the 
witnesses, to be called. 
Mr. GOOD: And make a recommendation in that direction. 
Motion agreed to. 
The VICE-CH.a_IRM.a_N: Who will be the first witness? 
Mr. I would suggest Mr. Finlayson. 
The VIcE-CHAIRM.a_N: Pending the arrival of Mr. Finlayson, we might 
hear Mr. Edwards, if it is agreeable to the Committee. 
George E. EDWARDS: Chartered Accountant, Toronto, Ont., called. 
Mr. G.a_RL.a_ND: IS Mr. Edwards prepared to make a brief statement in 
regard to bank inspection? That would perhaps open up the subject. 
The VICE-CH.-IRM._N: Mr. Edwards, of Toronto, of the firm of Edwards, 
Morgan & Company, Chartered Accountants, is your witness. 
Mr. GOOD: May I ask at whose suggestion Mr. Edwards has been called 
[Mr. George Edwards.l 

14-15 GEORGE V, A. 1924. 
The VICE-CHAIRMAN: At the last sitting of the Committee, the sub-Com- 
mittee was instructed to get in touch with the Finance Department and ask it to 
accede to the presence here of an official of the Department who would give 
evidence before the Committee concerning bank inspection. Mr. Edwards is the 
adviser of the Minister when called upon to give his advice in respect of banking 
and financial questions. 
Mr. IRVINE: I understood that Mr. Edwards was to deal with the amend- 
ments to the Banking Act adopted last year, as to how they might be expected 
to protect depositors. 
The VICE-CHAIRhIAN: Exactly. Mr. Edwards has not prepared a state- 
ment, but he is willing to answer any questions that members would like to ask 
Mr. SH.xw: I would suggest that Mr. Edwards make his statement as 
to the operation of those amendments. He is familiar with them. 
By Mr. W. F. Maclctn: 
Q. What do you know about the Home Bank, Mr. Edwards? 
The Vc-CHAmA: I think we will make more rapid progress if Mr. 
Edwards gives his statement as to the effect of the amendments to the Bank 
Mr. LADIER: Perhaps Mr. Edwards might tell us what he knows to be 
the effect of Section 88(a) as to notice of intention to give security, and what 
effect it has had. 
The Vc-CHAmAS: I would suggest that the witness make a general 
statement and then answer any questions that suggest themselves. 
Wwss: Mr. Chairman, speaking generally with reference to the new 
features of the Bank Act, which came into effect last year, I would like to say 
that those provisions are generally effective at the present time, with two or 
three exceptions. I will touch upon the chief amendments which, I think, were 
intended to serve any purpose, or such as, I understand, this Committee has 
under consideration at vhe moment, that is the protection of deposit-ors or 
shareholders. The first important amendment introduced into the Act last 
session was Section 18 regarding the pension funds. I am unable to say whether 
the banks have yet completely complied with the requirements of that secticn. 
which was intended to secure to the employees of the banks the invest.ment of 
their pension funds in trustee securities. Some time was to be allowed to the. 
banks to make the conversion, but the time was, I think, to be in the discretion 
of the Minister. I have no doubt, however, that the matter is receiving, if it 
has not already completely received, the attention called for. 
The next important Section is Section 54. 
By Mr. McMaster: 
Q. Before you pass from that pension fund provision what were these 
investments in before?--A. The Merchants Bank case showed that the officers 
of the Bank had invested the pension funds in sha.res of their own bank, and 
therefore, should the necessity for enforcing the double liability arise the bank 
would lose. In the case of the Merchants Bank, it meant that their funds had 
been invested in sha.res of the Merchants Bank at around 160, and by the terms 
of sale to the Bank of Montreal, they realised about 110 only. Therefore, those 
eutitled to the pension, I believe, would ultimately receive only about 72 per 
cent of the pension that was originally intended. 
By Mr. Ladner: 
Q. Was there any such fund in the Home Bank?---A. There was no pension 
fund in the Home Bank. 
[Mr. George Edwerds.] 



By Mr. Shaw: 
Q. Suppose that the Merchants Bank had become insolvent, what about 
the double liability on those shares? What would have been the situation?--A. 
That is, of course, what suggested the amendment, the fact that those people, 
the employees of the Bank, had nothing really to say in the management of the 
funds that they had contributed to, in part at all events, and that the fund would 
be invested without any voice of their own. It was that which suggested the 
amendment last session. 

By Mr. W. F. Maclean: 
Q. Is the amendment being complied with? A. As I have said, I am not 
absolutely avare whether it is being completely complied with, because a certain 
time was allowed to the banks for the purpose of converting those securities. If 
Mr. loss knows, he might inform the Committee, hut I have not the knowledge 

By Mr. McMaster: 
Q. It provides for investment in the different provinces?--A. They are set 
out in the Trust Companies Act of the Dominion of Canada under which the 
insurance department supervises the investments of life insurance companies and 
other bodies; and the nature of those securities is regulated by that Act. The 
amendment was taken from that Act. 

By Mr. Coote: 
Q. May I ask you a question with regard to the pension fund? I understand 
that it is a fact that in some of our banks the employees are compelled to pay 
into the pension fund a certain percentage of their salaries, and if they leave the 
bank, or are discharged from the bank within a certain number of years, they 
get absolutely no return from the pension fund. Do you know whether that is a 
fact, and if so, is it not working injuriously to the employees of the banks?--A. 
I do not know that to be a fact, but I do know of a case where an employee had 
been dismissed and has received back the money he paid in to the pension fund. 
But whether that is a universal practice or not I do not know. I think that 
every one who contributes to the pension fund out of his salary receives con- 
sideration in the event of severing his connections with the bank; lust what it 
is, I cannot tell you. 
Q. I think that if the Committee went into this question, it would find that, 
according to the by-laws of our banks, employees are not entitled, if they leave 
the bank or are discharged, to the money they have been compelled to pay 
into the pension fund. This may be an opportune time to mention this fact. 

By Mr. Irvine: 
Q. Would you say that this amendment to the section dealing with the pen- 
sion fund materially protects the depositors?--A. No, but it protects the bank 
Mr. S.LES: Could Mr. Ross give us any information on that subject? 
The rIcE-CHAIRMAN: I vish to draw the attention of the witness to the 
point we are now investigating. The reference is in respect to the safety of 
depositors. You will see that the answer given to Mr. Irvine does not affect the 
security of the depositors. Therefore, I do not think we should insist very much 
on that point. 
Some hon. h[EMBERS: Hear, hear! 
[Mr. George Edwards.] 

14-15 GEORGE V, A. 192 
By Mr. Healy: 
Q. Before you leave this aznendment, you mentioned that the shares in 
which the fund was invested would be affected by the double liability clause. 
Would it be fair to say that all moneys invested in the shares of a bank out of 
this pension fund would be lost, that the double liability would be lost entirely 
and would be of no benefit to anyone?--A. It might not be entirely lost if the 
other investments were slFficient in whole or in part to meet the double liability 
Q. That is not just my point.. A certain amount of money was invested in 
the shares of banks out of this fund. In the case of a bank failing, would the 
double liability clause lose all its benefit to anyone, in so far as the money 
invested in those shares is concerned?--A. If the pension fund had no other 
resources, the bank would lose undoubtedly; the depositors would lose the benefit 
of the double liability, but I would like to be sure as to what your question is. 
Hon. Mr. STEV,NS: May I be permitted to interject that that type of 
investment is no longer permitted. 
WTESS: It is not now. 
Hon. Mr. STEVENS: It is ancient history. 
Mr. HEALY: Pardon me, it is a live issue. The whole point of double 
liability is coming up. My point is, where a bank is about to fail, those who 
have knowledge of the inside workings of the bank can transfer their shares, 
getting rid of the double liability--transferring their shares to the owners who 
have no financial responsibiliW. Therefore, the double liability as regards bank 
shares becomes useless. The point I am making is that a bank which invests 
this fund or other funds in their own shares at once gets rid of the double 
liability as an asset. It is written off entirely. 
WIwEss: I understand your question. The pension fund is not the bank; 
it is a separate fund. It is a trust. If the pension fund were the bank itself, 
I think your view would be the correct one, and the benefit of the double liability 
would be lost entirely. But these pension funds are not the funds of the ban. 
They are shown in the bank statement as money on deposit to the extent that 
they have it on deposit; but apart from that, they are separate investmer.,ts 
which are not disclosed in the banks' affairs at all. Therefore, the pension fund 
is a shareholder in the bank in the same sense as you or I might be a shareholder 
in a bank. 
An Hon. MaMa: It is illegal to do it any more, so what is the use of 
talking.about it? 
The VcE-CHAmMA: I would suggest that the witness discuss the amend- 
merits to the Bank Act adopted last year in respect to deposit and safety of 
depositors, in so far as they affect the safety of depositors. 
Mr. McMnswEu: 0f course, the whole administration of banks affects the 
safety of depositors. 
Mr. Bnxwa: It would be a nice thing if we could hear the statement of 
the witness as he sees it and have questions mercifully withheld until he is 
WESS: Section 54 is the one which prescribes the form of stateme,.tz 
presented to the shareholders and the public. There were amendments last 
year to that section which made it clearer. Just what the various classifications 
would include, and to the extent that these afford additional information, they 
are, I should say, a noral check upon the bank in the classification and arrange- 
ment of their annual statements. I would not like to say to what extent they 
would contribute to the safety of depositors, other than that they furnish info:- 
Mr. (;eorge Edwards.] 

14-15 GEORGE V, A. 1924 
Bg Mr. Ladner: 
Q. On that question of inspection and responsibility; do you not think 
tha a certain kind of inspection of the larger accounts at the Head Office with 
a direct responsibility to the Government would be effective in the manner 
that the present system is not effective? A. An inspection system, in my 
opinion, is merely an inspection of certain accounts. It would be the inspec- 
tion generally of all the accounts, or at least information which would be 
satisfactory as to all the accounts, and then the resolving of all the information 
into a statement, which would test, by its results, the solvency or otherwise 
of the bank, or the position of the bank. 
Q. But that is perfection. Take a practical situation such as we have. Is 
it not a fact that the inspection of the large accounts at the Head Office, 
especially with respect to their value and security, would have avoided bank 
failures and difficulties which have actually occurred? That is, inspection by 
the Government and responsibility to some other than the bank or interested 
parties?--A. Surely, but inspection of the Head Office will disclose nearly all 
the trouble, and, therefore, an inspection of the securities at Head Office 
would be an effective step. 
Q. Well, Mr. Edwards, you have a lot of experience on these banking 
questions, and we had the benefit of your advice last year, and this is a very 
important question to the country. I am asking you, as an expert, for your 
opinion--whether or not you do not think it would be advisable to have a 
system of Government inspection of the larger accounts at the Head Office put 
into force immediately, and if we can advance or improve upon that system, 
we can do it later on. 
Mr. M.cLEA: That is the point. 
The Wwass: My views last session-- 
By Mr. Ladner: 
Q. What is your opinion now, in view of your experience last session and 
the failure of the Home Bank? 
Mr. MAcLE: In view of the present situation. 
The Wass: The inspection of large accounts by Government inspectors 
would, I think, be very useful. 
Mr. MncL: That is the point. 
By Mr. Ladner: 
Q. Would you, as an expert accountant on banking, advise the Govern- 
ment to institute such a system at the present time, at this session of Parlia- 
ment?---A. I do not think I would advise them to institute that system at the 
present time until the efficacy of the sections provided in the present Act have 
been thoroughly tested out. 
Mr. McLEA: And a horrible example occurring in the meantime. 
By Mr. Lader: 
Q. Then, as I understand it, you think a system of inspection which is 
responsible to the management of the bank is as effective as a system of 
inspection which has its responsibility to the Government, and in that way 
to the public? A. If the nature of the inspection is known to the Government. 
By Mr. Ward: 
What do you mean by "Government "? A. The Minister, in this case. 
I should have said the Minister. If the Minister, in the exercise of his dis- 
cretion, will inform himself as he has the right to do, as to the character of the 
inspection carried on- 
[Mr. George Edwards.] 

Q. In other words, this information is first of all collected by the ordinary 
auditors and sent to the head office. These returns are made by the ordinary 
bank auditors under the Bank Act, and when the Government auditor comes 
along and looks over the whole thing again. How much further do we get by 
the Government inspector doing that? Mark you, he is taking the values given 
to the securities by the banks' own inspectors and by the banks' own auditors. 
and he is also taking the personnel. You will agree with me-- 
Mr. I-IEALY: I do not think we ,should argue those points with the witness. 
Mr. MARLER: I am not arguing; I am trying to get at a very important ques- 
tion as to whether a Government inspector would do any good. If it is a good 
system, let us have one that we know about. 
Mr. t-IEALY: I think that right now you are arguing; we want to get the 
The VXcE-CHAmtAN: In cross-examination an hon. member who puts a 
question can argue with the witness to obtain further information or his point 
of view on any particular subject. Of course, we must not indulge too much in 
it, but I think it is fair, and I think the hon. member, so far, is quite in order. 
Mr. MARLER: I am not trying to make a speech. 
Mr. HEALY: You were certainly succeeding. 
Mr. MARLER: You will forgive me, Mr. Edwards,-- 
WXNESS: I am very much interested in your questions. 
By Mr. Marler: 
Q. The point I am trying to make clear to myself and to the Committee is 
as to the value of Government inspection. I think you will agree with me, and 
I think perhaps the Committee will agree with me, and I think the Acting Min- 
ister of Finance will agree with me--- 
Hon. Mr. RoBB: not always. 
Mr. MARLER: If the Government does take up Government inspection, the 
Government .must aume certain liabilities in that connection. How can you 
get out of assuming certain liabiliti_es? What is the intention of Government 
inspection unless the public knows that the Government O.K.'s, puts its guinea 
stamp on the statement that comes out---there is no getting away from that. 
WIESS: I sppose that the value of Government inspection is. the know- 
ledge that so long as the Government takes no action in respect to a bank, 
it is satisfied with its position. 
By liar. Marler : 
Q. We have that position of affairs at the present time. Taking no action 
with regard to other banks in the past, the public has gone ahead and thought 
that those bnks were perfectly solvent.---A. Of course, there is the new Act. 
Q. There is the new Act, and since that Act was promulgated, many things 
have happened during the last six months; we are quite aware of that? 
A. I think that is complimentary to the new Act. 
Q. Perhaps it is; perhaps the new Act will cure a great deal. But to return 
to the question of bank inspection, am I right in thinking that this bank inspec- 
tion which is suggested will be a secondary inspection? You quite understand 
from my argument what I mean by secondary inspection?--A. It will be a 
secondary inspection for the most part. 
Hon. Mr. Ro: Before we leave that point, I notice that Mr. Marler and 
other hon. gentlemen have, by way of reference, alluded frequently to the 
[Mr. George Edwards.] 

advances on such a commodity, would not that be easily discoverable by a 
government auditor, and would it not enable him to bring that matter to the 
attention of the Government?--A. The matter would provoke inquiry, would 
lead to inquiry. 
Q. Would not a government audit easily discover whether banks were 
advancing different amounts in respect to securities more or less of the same 
value? Let me give an instance. Let us suppose that a number of banks were 
advancing considerable sums of money on lumber, say, on timber limits; woulzl 
it not be very easily discoverable if one bank was lending a very much higher 
amount per mile than other banks were lending on limits on comparatively the 
same value?---A. It would, and it would also lead to inquiry.. I would think where 
any bank was lending unduly on any class of security which might be adversely 
affected by market conditions causing a serious slump. 
Q. Would it not be easily discoverable by a government audit if certain 
banks were lending say one customer or two customers a very. much larger 
proportion of their total reserves, both in capital and deposits, than the ordinary 
rules of banking permitted?--A. Yes. 
Q. Then, it is your opinion, as I take it, that although , government audit 
might make use of a great deal of work done by the banks' internal audit, never- 
theless, it might have a very wholesome effect in preventing such a situation?-- 
A. Yes. 
Mr. W. F. ]k/IAcLEAN: DO yOU mean by government audit, government 
Mr. MCM^STER: Yes, government inspection. 
WITNESS: While on that point, I would like to make this statement respect- 
ing the value of information obtainable from the bank's own offices. Mr. Marler 
rather inferred, I think, that it would lack dependability if obtained from the 
bank's own officers. It might be a fact that certain bank officers were not 
Mr. MAIRLEIR: AS to secondary evidence, not primary. They might be quite 
dependable as regards primary inspection. 
WITNESS'- My point was simply this: If you have reports coming in from 
500 branch managers, they are the views of 500 people each upon the matters 
under his own eye. That is an almost invaluable source of information, taken 
collectively. There may be a few optimists, and there may be a few pessimists, 
or a few who are deliberately concealing. But in the mass that will be very 
dependable information upon which the Government auditor could rely, if he 
finds that the system is being properly carried out and that the procedure is 
By Mr. Irvine: 
Q. Mr. Edwards, I think you said a few moments ago that you advised the 
Minister last year as to the amendments which were incorporated in the Bank 
Act?---A. Yes. 
Q. Did you advise him with regard to those which were dropped, as he 
himself proposed?--A. I do not recall to what you refer, Mr. Irvine. I know 
that the Minister altered the form of certain amendments. He stated at the 
outset that he might have to do that in the light of the evidence given. 
Q. Mr. Fielding moved that clauses " hi " and " N " be struck out. Those 
were his own sub-sections?---A. Yhat section? 
Q. Section 54. They were dropped, and he argued they were dropped on 
the advice of the bankers' representatives that it would perhaps be information 
that should not be given?---A. I remember that. 
Q. I was wondering who advised him?---A. It was agreed by the committee 
that the Minister would be at liberty to obtain information in any way, and 
[lr. George Edwa'ds.] 

14-15 GEORGE V, A. 1924. 
special sub-sections were passed to enable the Minister to do that, and that was 
being done all through the recess. 
Q. Did you think last year that any form of Government inspection would 
be of any service to the depositors? A. I don't remember just what view I took 
last year. 
Q. You did not advise the Minister against the passing of Mr. Woods- 
worth's resolution, did you?---A. I took the responsibility of commenting upon 
it to the Minister. 
Q. Unfavourably?---A. I said nothing to the Minister but what I said in 
Mr. SHAW: Surely the witness has the right to change his mind? 
Mr. IavIE: Certainly. 
, By Mr. Irvine: 
Q. I suppose you will object to something I will suggest in a few minutes; 
it would not follow that it was wrong for me to suggest it. You might agree to 
it next year after four or five more banks have failed, but where others have 
done their duty to the best of their ability, according to the Bank Act, when 
the Finance Minister has used discretion and done his duty according to that 
discretion is it not still impossible to prevent a bank from failing?--A. :No. 
Q. So that a bank may fail wh.en the very best has been done with the Act 
as it now stands? A. Yes. 
Q. Or so far as it may be amended?---A. Quite. A bank may fail from 
causes that have nothing to do with a Minister's discretion. 
Q. You cannot see any way by which a Minister may be allowed to accept 
responsibility for public losses, but can give advice in certain cases? A. Not 
unless he is prepared to manage the bank. If the Minister were to do that it 
would lead, I doubt not, to laxity of management. 
Q. You suggested a few minutes ago to Air. Woodsworth that he could not 
accept that responsibility? A. I don't think I put it exactly that way. I would 
say he ought to accept no responsibility involving a guarantee of deposits. 
Q. And I think you suggested also that it would not be advisable to permit 
the public to know the facts as to how the banks are investing their money? A. 
I think that would be very dangerous. 
Q. Then you agree that the bankers have all the protection that can be 
logically given to them while they enjoy the right of franchise or of charter to 
handle the public funds, but the public has absolutely no protection. Is that the 
situation?--A. I don't quite follow you. I don't think I have said anything to 
lead up to that conclusion at all. 
Q. Will you disagree with that? A. My activities in connection with the 
Bank Act, at the request of the Minister, have been entirely in the public interest. 
Q. Yes, but you have agreed that when you have done your best, you 
cannot protect the public from bank failures?--A. I agree there are some con- 
tingencies which cannot be met by legislation. 
Q. Then the situation is that the Minister cannot accept responsibility, or at 
least, you would not advise him to, but you would advise that the public must 
not know as to the condition of their deposits and how bankers are handling 
them. We have legislation which protects the bankers in that respect but there 
is. no legislation to protect the public?--A. I think the wlmle Bank Act is legisla- 
tion to protect the public. 
Q. Then the whole Act fails when the crisis comes? A. In my judgme,, , 
gives a very large measure of protection. 
Q. Do you believe in the general principle that public savings should be 
protected?--A. I think so. 
[Mr. George Edwards.] 

14-15 GEORGE V, A. 1924 
you believe you could re-establish a confidence on that basis? A. I think it 
would help. 
By Mr. McMaster: 
Q. The amendment you have suggested would help? A. Yes. Oh, do you 
mean the amendment of last session? 
By Mr. Irvine: 
Q. Yes. From your own knowledge you admit there is no guarantee of 
safer deposits?--A. I will put it this way; I think the Audit and other sections 
introduced into the Act last year were great advances over previous conditions. 
I think a super-imposed system of supervision of banks through a Government- 
appointed officer would be a further advance over the Act in its present form. 
I do not say it would be a "cure-all" or that it would favour absolute guarantee. 
Q. But my question is, do you think you can build up a confidence without 
that guarantcc?---A. I don't know why not. There is no such thing as a guarantee 
of bank deposits, anyhow. 
Q. That might be, but you will quite agree that in Canada at the present 
time there is a widespread distrust of the banking system?--A. I don't know that. 
I think solne people are persuading themselves that way, but I do not think that 
is the fact. 
Q. I would like to persuade you it is a fact and that there are great grounds 
for that fact. We ought to have something to re-establish that confidence in the 
interest of Canada, and I suggest that on the present basis that cannot be done. 
Do you agree with me?--A. No, I don't agree with you. 
By Hon. Mr. Stevens: 
Q. I would like to ask you one question. The suggestion is made that 
perhaps we could strengthen the present audit system by super-imposing an 
inspection of head offices. Having in mind subsection 9 of section 56, for 
illustration, I would like to ask you, if it were made obligatory instead of 
simply optional with the Minister that the banks' auditors instead of reporting 
from time to time should report at specified periods, say from three to six 
months, would not the Minister or an official appointed by the Minister be in 
possession of all the essential facts necessary to correctly understand the condi- 
tion of the banks, equally as well as if the Minister appointed somebody to 
enter into an examination of the books for himself?--A. In my opinion, yes. 
Q. So that an official of the Finance Department, qualified of course, 
would accomplish all we are now discussing in regard to an additional audit.. 
iust as well as by a physical examination of these head office accounts?--A. 
I think so; but at the same time it does not preclude the right of the Govern- 
ment officer to investigate personally anything he saw fit. 
I-Ion. Mr. STEVENS: Yes, we should have that clearly understood, that it 
is not to prevent any further examination. 
By Mr. Hughes: 
Q. Has the Bankers' Association any knowledge of the methods pursued 
by the bank, whether they are in accordance with the usual banking principles, 
and prudent or imprudent?---A. I have not sufficient knowledge to answer 
that question generally, but I remember having a conversation with the general 
manager of a bank, and I discussed with him the degree of knowledge which 
the other banks might have been expected to have of the condition of the 
Home Bank during the few years preceding its collapse, and the answer was 
that in that case it was difficult to know what to make of it. There was a 
variety of opinions held with regard to the position of the HIome Bank; some- 
[Mr. George Edwards.] 

times they thought it was not as good as it ought to be, and at other times 
their suppositions were altered. I can only ask you to draw your own inferences 
from that conversation, because that is as far as it went. 
Q. There were suppositions, at all events?--A. Doubts were occasionally 
raised. I say that in order to suggest to you that the banks probably have no 
special facilities for ascertaining the condition of other banks. 
Q. Has the Bankers' Association access to the returns which ,re made to 
the Government?--A. The monthly returns, yes. They are published !p the 
Q. But they only have access to the documents to which the public have 
access?--A. Well, as far as I know. 
Q. And from an examination of these returns could an opinion be formed 
as to the method pursued by the different banks and as to their soundness?-- 
A. From all the information which is given to the Government in the form 
of returns a tolerably good opinion could be formed--although not complete. 
Q. If the Bankers' Association or an officer designated 1)y the Association 
had the power or the right to et all the information that concs to the Finance 
Minister, in your opinion would that bca proper procedure?--A. A practicable 
method ? 
Q. Yes, a practicable method?--A. It would bc practicable, if the Bankers' 
Association were willing or required to adopt that procedure; it would be quite 
proper, I think, if they consented amongst themselves. 
Q. That would give the Bankers' Association as much knowledge as the 
Minister of Finance or the Deputy Minister possessed?--A. If the powers to 
obtain information were as wide as those which the Minister now has. 
Q. Would you have any objection to a personal inspection, or would you 
see any objection to it from a public standpoint?---A. None whatever; if the 
Bankers' Association can do it, I would have no objection whatever. 
By Mr. Ladner: 
Q. On this very question yesterday I understood your opinion, after some 
examination, to be that it would be in the interest of the country and the banks 
to have legislation for the establishment of a system of separate Government 
inspection of the larger accounts at the Head Offices. :Now, I am not speaking 
of the time when this should be done. Are you still of the same opinion and 
would you so advise the Minister of Finance?--A. I think I said yesterday, 
Mr. Ladner, that it would have advantages, but I want to make it clear thac 
that alone would not constitute an adequate degree of supervision by the Gov- 
ernment, if the Government were to decide upon supervision. 
Q. As compared with the existing system, would it not be advantageous 
to establish a system of Government inspection of the larger accounts at the 
head office, because it is these accounts which have brought ruin to he bank? 
Apart from the question of perfection, would it not be wise to do that, as I 
understood you to say yesterday, at the next session of Parliament?--A. I 
think you could go further than that under the powers which the Minister now 
Q. If he exercises his powers now suddenly, would it not be injurious to any 
bank he might enter, unless you made it an obligatory, and regular inspection?-- 
A. Quite. Any exercise of these powers, in my judgment, would have to be 
applicable to all the banks so that there would be nothing conspicuous about 
the entire thing. 
Q. So the effectiveness of this provision for inspection by the Minister is 
approximately nil in its practical working out?--A. :Not necessarily. 
Q. It would apparently have to be an extreme case in which the Minister 
would be disposed to exercise that power under the Section, and send an examiner 
[Mr. George Edwaxts.] 

14-15 GEORGE V, A. 1924 
or auditor into the bank? A. I do not think the sub-section contemplated merely 
a special set of circumstances, Mr. Ladner. I had something to do with the 
wording of that, and I know that was not in my mind. 
Q It is not what was in your mind; it is what has been expressed.--A. I 
think it expresses that too. I do not think it necessarily conveys the impression 
that it was to be used only in special cases. 
Q. You think the Minister could not act under that Section unless he 
examined all the banks?--A. :No, but I think it would be imprudent to exercise 
it in the case of one particular bank. 
Q. Then the Section does not amount to very much?--A. Yes, because he 
can exercise his discretion in regard to all the banks. 
Q. Your judgment is this, that if something was wrong with one bank it 
would be imprudent for the Minister to exercise his powers under this Section, 
unless he examined all the banks from the largest to the smallest. That is not 
very practical.--A. I think it is a very practical section. 
Q. Do you not think that an irregular and impulsive inspection which would 
be imprudent and injurious, perhaps, would not be as good as having a system 
of Government inspection of the larger accounts at the head offices with a direct 
responsibility from the bank to the Government--not to the bank auditors, but 
to the Government examiner?---A. :No, I would not disregard the bank auditors, 
or the responsibility of the bank officials. 
Q. I am not asking you to disregard the bank auditors, I am asking if it 
would not be in the interest of the country and the banks to have a system of 
Government inspection by Government men of the large accounts at the head 
office. That is a plain proposition. Do you agree with it or not?--A. If nothing 
better was possible I would say that would help, but I think we have something 
better already in the Act. 
Q. With this Section?--A. Yes. 
Q. It makes the Minister examine all the banks when he only wants to 
examine one? A. Why should he want to examine one. He has a very good 
chance to examine them all. 
Q. Because he has evidence that one is not acting in good faith, or is acting 
wrongly, do you think he should examine all the banks? A. I do not think 
that was the purpose of the sub-section. I think the purpose was that there 
should be a general inquiry into all the banks along the lines suggested. 
Q. Surely that is a futile thing to do?--A. Absolutely not; it is a very useful 
thing to do. 
Q. Suppose he found out something was wrong with one bank; what is the 
course that the Minister should pursue?--A. If you say it is futile, you have to 
take it for granted that some banks are sound and some are not, and that is 
not a fair assumption for you to take. 
Mr. LADNER: I think it is fair to assume that some banks are more sound 
han others--very much more. 
Hon. Mr. ROBB: Will you tell the Department what banks you think are 
Mr. LADNER: Does the Minister think all of the banks are of equal strength? 
Hon. Mr. :RoBB: :No, but I wish you would tell the Department which banks 
you think are unsound. 
Mr. LADNER: I will admit that some banks are more sound than others. :n 
the past we have been faced with a situation where the public thought they were 
all sound, and some were absolutely rotten. What I am getting at is that with 
this new plan, of which Mr. Edwards spoke, in the Act, outside of this Section, 
[Mr. George Edwards.] 



we would naturally conclude the Minister could investigate any single bank of 
which he had knowledge that there was something wrong. 
The WTESS: Of course he has the power to do so under the Act, it would 
be a question for the Minister of how discreetly he could proceed. 
By Mr. Ladner: 
Q. Apart from this Section?---A. No, under this Section, Mr. Ladner. 
Q. Mr. Edwards, your conclusion is that he should examine all the banks?-- 
A. I think so. 
Hon. Mr. ROBB: Do you object to that, Mr. Ladner? 
r. LADNER: NO, I don't object to that, but I think it is not practical. I 
think it would be better to have a periodical, regular inspection. 
Hon. Mr. ROBB: Of all banks? 
Mr. LADNER: Yes, and not under discretionary power, because that would 
not be fair. 

By Mr. Maclean: 
Q. I would like to ask you one question in connection with this duty you 
are now imposing upon the bank auditors, as to whether there is any penalty 
connected with the non-performance of the duties imposed?---A. I think so. 
Section 153 includes the auditors. It says, " Every president, vice-president, 
director, auditor, gcneral manager or other officer either for neglect or for 
intent," etc. 
Q. What happens? A. The section speaks for itself. 
Q. But what is your opinivn? A. I think that brings the auditor within the 
range of punishment if he does not do his duty. 
Q. You said in substance that Government banks mighb be dangerous. I 
want to ask you if you know, as a matter of fact, that the Government of the 
United States and the whole credit of the United States is involved in a system 
of re-discounting which makes the Government of the United States the greatest 
banker in the world, and the backbone of the circulation of the United States 
and the credit of all the banks? Do you admit that?--A. I can make no 
definite statement as to the credit of the United States banking system. 
Q. That is your statement. If your knowledge is limited you were hardly 
competent to make that statement? 

By Mr. Healy: 
Q. I understood from your evidence yesterday that we had progressed this 
far, that you were willing to advise the Government before next session in 
regard to a Government system of inspection?--A. Yes, I stated yesterday, I 
think, that to develop a system of Government inspection would require more 
time than that afforded by the present session of Parliament, but could be done 
by the next session. 
Q. But we were permitted to conclude that you were ready to advise the 
Government that it was necessary? A. I do not think I gave an unqualified 
opinion in regard to Government inspection. I think I limited it by stating 
thab it was to be a system of inspection superimposed upon the present means 
of checking up banks, I would be in favour of it, but if it contemplated an inde- 
pendent system of Government inspection, I was not in favour of it. 
Q. I don't care what the method is, as long as you are in favour of Govern- 
ment inspection. May we conclude that much?---A. I am in favour of the 
extension of the present system. 
Q. Of Government inspection?---A. Yes. 
[Mr. George Edards.l 

14-15 GEORGE V, A. 1924 
Q. But it need not go any farther than the head office, or the centres of 
reserve to make it practical? A. And possibly a few branches if the circum- 
stances warranted. 
Q. Then if that secondary inspection led the Government to suspect a large 
account in a branch, they would have the authority to go in there?--A. Yes. 
Q. And that would make it practically a Government inspection of banks? 
By Mr. ,IcMaster: 
Q. Increasing t, he security of the people's deposits?--A. Yes. 
By Mr. Healy: 
Q. You are prepared to recommend that? A. I do. 
Mr. I-IEALY: Then why go further into the argument on inspection? 
Q. You made another statement on which I want to be corrected if I have 
arrived at the wrong conclusion. You say there are no guaranteed deposits in 
Canada?---A. There are no banks where the Government guarantees deposits. 
Q. What about the Post Office Savings Bank? A. I grant you that, but 
that is not doing a banking business. 
Q. That is what I asked you. It guarantees deposits?--A. Then allow me 
to correct it, because I have no idea of considering a Government Post Office 
Savings Bank as a banking institution. I am speaking of the banks as we 
generally understand them; people carrying on the business of banking. 
Q. But I am speaking of guaranteed deposits.--A. There are various sorts 
of depositories which guarantee deposits; trust companies, for instance, have to 
set aside a portion of their securities to cover the deposits. 
Q. Quite right. Those are deposits guaranteed by the Government? That 
is right?---A. That is right. 
Q. :Now, is there any other one? D,oes not the province of Ontario guar- 
antee the deposits in its bank?--A. Yes. 
By Mr. Shaw: 
Q. Mr. Edwards, you have considerable faith in the amendment you pro- 
posed last year, and one cannot blame you for having confidence in your own 
child, but you said you were impressed in connection with the Merchants Bank 
by the ignorance of the directors, and you consequently put in this provision 
in which the auditors were called upon to report to the directors. You have 
listened to the Home Bank case. Were you convinced there of the knowledge 
of the directors?--A. I think the directors were ignorant, as a body. 
Q. But were they not fully informed as to the facts?---A. I don't know, 
Mr. Shaw, whether I ought to answer that question, because the directors are 
at present charged with conspiracy. 
The VICE-CHAIRMAN: We have exceeded our time, as it is past one o'clock, 
and if Mr. Shaw will suspend now he will have the privilege of being the first to 
examine Mr. Edwards at the next sitting. 
I have to inform the Committee that I have received from Mr. Ladner a 
notice of motion that at the next sitting of the Committee he will move 
" That in the opinion of this Committee the Bank Act should be amended 
in order to provide for the establishment in the chartered banks of Canada of 
a special savings account or other class of accounts for savings deposits in 
addition to those now existing, whereby all holders of deposits in such special 
savings account in any one bank, or branch thereof, shall be protected or guar- 
anteed against loss up to the sum of $3,000 according to a similar principle as 
that now provided for in Sections 62 to 69 inclusive of the Bank Act relating 
to the protection of bank notes by the establishment of a fund known as the 
[Mr. George ldwards.l 

Q. Now, do yvu know whether that is the situation in the Un'ited States 
where they have Governmental inspect.ion?--A. My information as to the 
United States system is that the Government are not responsible and do not 
guarantee deposits. 
Q. And assume no responsibility even though they inspect?---A. Quite. 
Q. I want to just ask a few questions along that line. I you will 
admit, of course, that a bank is not a private corporation, but rather a quasi- 
public corporation, is it not?---A. I understand that to be so. I perhaps have 
not the full legal significan, ce of the term, such as you would have. 
Q. Well, let me put it this way. It differs from a private corporation in 
the sense that there are obligations to the public?---A. Yes. 
Q. And I take it that the interference, if I might use that word, not sug- 
gesting anything improper--or perhaps I had better say the regulation by the 
Finance Department and in the Bank Act is for the purpose of insuring that 
that portion of its duties which has to do with the public is properly carried out? 
-A. Yes, so far as possible. 
Q. And the Government or Parliament under the Bank Act apparently 
realized there is a responsibility to the public, to depositors, creditors and 
vthers?--A. I should judge so. 
Q. Now, would you say, Mr. Edwards, that under those circumstances 
the corporation being as it is, the responsibility to the public being as it is, that 
the Government should do everything within its power in order to see that the 
corporation--that is, the bank--carries out adequately and safely their duties 
to the public?--A. I do. 
Q. And of course the other thing follows that the failure to do those things 
would 'be the very thing which would involve the Government in any respon- 
sibility there might be?---A. I assume so, yes. 
Q. Then I take it this necessarily follows; that inspection is a thing which 
the Government should do as an alditional safeguard to see that the duties 
to the public are properly carried out?--A. If the duty is laid upon govern- 
ment, I think they should see it is carried out. 
Q. I think you have admitted before that inspection is the proper safeguard 
and a necessary safeguard? A. Some form of inspection. 
Q. And that it is only by doing everything that is necessary that the Gov- 
ernment can relieve itself from responsibility--if responsibility there be?-A. 1 
think that is a fair statement. 
Q. So that my suggestion, Mr. Edwards, is this; that it is rather the lack 
of inspection than inspection itself wl:ich will involve the Government in responsi- 
bility?-A. Yes, I think that is true too. 
Q. Now, you are aware, I take it, from the pamphlet issued by the Bankers' 
Association--and vou also know from your own knowledge--that the depositors 
in a bank have a ourth mortgage?--A. Yes. 
Q. That may not be putting it accurately legally, but that is what the 
pamphlet says?--A. That is correct. 
By Mr. McMaster : 
Q. Is it in your knowledge who writes these anonymous contributions 
distributed amongst us on behalf of the banks? A. No, sir, I know nothing about 
their authorship. 
Mr. VIAcLEAN: Have we not a representative of the Bankers' Association 
here, who could perhaps tell us? 
The VIcE-CtIAIRMAN: I think if you want to go into this matter, that might 
properly be done a little later. 
[Mr. George Edwards.] 

14-15 GEORGE V, A. 1924 
By Mr. ,Shaw: 
Q. In any event you know from your knowledge of the Bank Act that first 
of all there is the responsibility to noteholders?--A. Yes. 
Q. And secondly, responsibility to the Dominion Government?---A. Yes. 
Q. And thirdly, responsibility to the Provincial Government?---A. Yes. 
Q. And the depositors come in after these claims are satisfied?--A. Yes. 
Q. Have you considered the nmtter of the elimination of any of these 
priorities, in order that the depositors may thereby rank higher upon the assets 
of the insolvent bank?---A. The subject of the abolishing of priorities of Govern- 
ment has been considered by me, but I am not sure I have all the elements 
necessary to a sound opinion on the subicct. Thcre may be reasons for main- 
taining that priority that I have not taken into account. 
Q. Let me give you the reason, as I find it, because it is given by Chief 
Justice Coate, about 350 years ago. He said the King was busy in making wars 
and making peace, and he did not have time to look after his revenue, and 
consequently, he should be given priority, and as you can see, this is carrying 
that principle of the King and the right of the Dominion, and the King and the 
right of the Provinces into our Bank Act.--A. I think a little revision of that is 
Q. Would any unfairness occur if these priorities of the Dominion and 
Provincial Governments were abolished?--A. Personally, I think not. I think 
they might well be abolished without any hardship to any one. 
Q. Then supposing they were not abolished, Mr. Edwards, would it not be 
desirable and logical to carry that priority to every department of Government, 
I mean, to the city and the School District, and the Municipal districts, and let 
each one of them have priority likewise in addition to the Dominion and the 
Provincial Government?---A. I presume so, but I assume that the distinction is 
that the city is not the Crown. 
Q. Quite right, but I mean in order to be logical should not that be carried 
further?--A. If you consider the definition of the Crown as distinct from the 
subject perhaps I ought not to speak too definitely about it. I have said that 
I can see personally no reason why this priority should not be abolished, but 
whether they should be extended or modified, I cannot say. 
Q. Now, let us go one step further, Banks' notes have first priority on the 
assets?mA. Yes. 
Q. And as an additional safeguard there is the Circulation Redemption 
Fund ?---A. Yes. 
Q. Provided by the banks?---A. Yes. 
Q. I would like to ask you, Mr. Edwards,--this being a matter of giving 
further security to the depositors--how it would be if this bank Circulation 
Redemption Fund was first called upon to satisfy the outstanding notes of the 
bank and then the bank notes of insolvent banks to have first priority to the 
extent unpaid? Do you gather what I have reference to?--A. Yes. 
Mr. HUGHES: Exhausting the Redemption Fund? 
Mr. SIhW: Yes, exhausting the Redemption Fund and then let the bank 
notes take priority on the assets of the bank until they are satisfied in full, 
instead of as now, where the Circulation Redemption Fund is only called upon 
in the event of the assets of the bank not being sufficient? 
WITNESS: The difference would be that all the contributions of all the 
cther banks would be used to minimize that priority. I have not considered that 
(Mr. George Edwards.] 

14--15 GEORGE V, A. 1924 
By Mr. Coote: 
Q. You are not in a position to answer that question? A. I would not care 
to put my opinion on record about the extent to which bank notes are legal 
tender, but I think it is in common practice; bank notes are accepted without 
any hesitation, by people in payment of debts. 
Q. But you cannot give me a definite answer as to whether or not it is 
legal tender?--A. Without further posting myself, I would not like to answer 
for the moment. 
Q. Can you give me any assurance, or would you say that our bank notes 
now are absolutely guaranteed?--A. Yes. 
Q. In what manner?--A. First, by the circulation redemption fund, and 
secondly by the priority of the assct. of the bank. 
Q. The priority on the bank is the first claim, is it not?--A. The first claim. 
Q. And the bank circulation fund is the next, or the shareholders' double 
liability is second?--A. No, I think the claim is against the assets. I do not 
know whether the circulation fund has had to be resorted to so far. 
Q. ]f the assets of the bank were not sufficient to pay the notes outstanding, 
can you tell us whether the shareholders' double liability could be used for that 
or not?--A. I could not answer that question. 
Q. Supposing the two together, the assets and the double liability, were not 
sufficient to meet the notes outstanding, then the bank circulation fund could 
be called upon?A. I would say yes. You are stating a very extreme case. 
do not think it ever occurred to me to consider that such a case could happen. 
Q. If that were not sufficient, then who would pay the balance of the notes? 
A. I could not tell you. 
Ir. SPENCER: .Ir. Chairman, it is quite impossible for us to get the answers 
of the witness. 
The VWE-ChmMh: I would request hon. members of the committee to 
listen to the evidence, otherwise it is hard for the witness to speak loud enough. 
At our first sitting in the other room some hon. members complained that the 
room was too small. We might complain that this one is a bit too large for 
the witness to be heard in every quarter, particularly if hon. members converse 
between themselves. We will ask Mr. Edwards to do his best, and I am sure 
the hon. members will co-operate. I would suggest that if any hon. member 
is desirous of questioning the witness for any length of time he should come in 
front of the committee so that we may hear the question and the answer. 
By Mr. Coote: 
Q. I do not think I will be very nmch longer. There is just one more ques- 
tion regarding the note issue. Is it not a fact, Mr. Edwards, that the total issu 
of bank notes is considerably in excess of one hundred million dollars? I have 
forgotten the figures.--A. I think it is, yes. 
Q. And the total in the circulation redemption fund is a trifle over six mil- 
lion dollars?---A. Yes. 
Q. Would it not add to the safety of depositors if the claim of the note 
holder, the prior claim of the note holder on the assets of the bank were abolished? 
--A. I have not considered that; I thought the theory had been so well advo- 
cated that it did not occur to me to consider the possibilities of that. 
Q. That is, advocated from the note holders' standpoint, but not from the 
standpoint of the depositors?--A. Well, I have been unable to see why the note 
holders' priority should be abolished. 
Q. I take it that you are not a depositor in the Home Bank; you may have 
been a note holder.--A. I do not think I was a note holder. 
[Mr. George Edrds.] 

14-15 GEORGE V, A. 1924 
deposits?--A. The loans at the head office are larger than the deposits? The 
head office makes no loans and accepts no deposits. 
Q. Taking an analogous case like the Merchants Bank of Canada, the loans 
in Montreal would be largely deposits in the Montreal office. That is quite 
distinct from the head office. The head office does not make any loans at all?-- 
A. Quite. 
By 2111". Coote: 
Q. How would you explain the large deposits at the head office if they do 
not make any loans? Or is this a play on words? The head office and the chief 
office?---A. I am considering how to get the idea across. The head office makes 
no loans; the head office is the controlling body, and if anything doubtful arises 
in the administration of a bank it is likely to drift into the head office or come 
under the immediate notice of the head oce and be found at the nearest branch 
to the head office; that is the branch operating under tile same roof. The 
policy of a bank would be to keep the outside business in as healthy a condition 
as possible, and to keep any doubtful matter: ('h)sely under their own super- 
Q. They kee l) very careful supervision over tile i)ranch offices?---A. As a 
rule they do; there have bccn exceptions, oi course. 
Q. They place a limit on the amount which a I)ranch nmnager can loan, ", 
presume?--A. Yes. 
Q. That amount would be fairly small in the ease of small branches? Or 
are you familiar with it? A. It may be large or small. A large industry near 
a branch would probably negotiate a large loan; it does not always follow, of 
Q. The loans which have wrecked some of our banks in the past have been 
large loans at the head office of the bank, is that a faet?---A. Yes, I think so. 
Q. Would it then be some safeguard of the depositors if the amount of 
money which a bank might loan to any customers were limited to a percentage 
of the paid-up capital of that bank?---A. Personally, I do not think that is a 
practicable limitation. It would hamper some very legitimate and proper 
banking operations. 
Q. If it were practicable, would it not assist in safeguarding the depositors? 
A. In this way, it would distribute the risks, and therefore the losses would be 
smaller when they did occur. 
Q. They would not be very liable to occur, would they?---A. If the bank 
had its risks more widely distributed, the losses would be more numerous, but 
not so important. 
Q. May I ask you a question in regard to the Banque Nationale? A. 1 
have said that I am not familiar with the Banque :Nationale, excepting from the 
information I have had access to in the Department. 
Q. Possibly you can answer this question from that. Is it not a fact that 
a loan of possibly twice the capital of the Banque Nationale was made to one 
industrial concern?--A. I understand so, yes. 
Q. If we had such a clause in the Bank Act as I am suggesting, to limit 
the power of a bank in regard to any one loan; do you think a loan of that 
size would have been contributed by any of the banks to this industrial concern? 
A. In the light of present knowledge, I think not; but it is pretty hard to say 
what the circumstances were that prompted the Banque :Nationale to give such 
a loan to that industry. 
Q. If it were not permitted by law to make a loan of that size, it would 
never have occurred?--A. It was an exceedingly imprudent thing to make an 
advance of that size, considering the extent of its resources. 
[Mr. George Edwards.] 

Q. Is it not fair to suggest that if such a limitation were inserted in the 
Bank Act, it might prevent some bank losses, if not failure?---A. It might not 
be a real protection, because if a bank was determined, for instance, to support 
an industry, that industry conceivably could be split up into several subsidiary 
companies, and each have a portion of the loan, and perhaps disguise it, and 
perhaps make the situation worse. 
Q. You think it could make it worse? 
By Mr. McMaster: 
Q. Mr. Edwards, is it, or is not, consoncnt with good banking that any one 
loan should only be of a ccrtain moderate size in proportion to the capital and 
reserve of the bank?--A. Oh certainly. 
Q. Will you explain to us why, if that is consonent with good banking, it 
would be impracticable to have it embodied in the law?---A. Because any 
particular limit you might fix in the law might work hardship. You cannot 
decide on the absolute merits of a case before having the facts before you; and the 
directors and the general manager are the proper judges as to those circumstances. 
By Mr. Coote: 
Q. Some members ask, on whom would this hardship bc worked? Would 
it work a hardship on the banks? --A. On a legitimate industry. 
Mr. W. F. hIACLE_N: Would it be on the poor depositors? 
By Mr. Coote: 
Q. The banks say that it is only their business to advance money to a con- 
cern for its current operations, not really to furnish it with funds to build up the 
industry?---A. I should not think that a bank should furnish funds to any 
company for the purpose of investing on capital account, or anything of that 
kind; it should be for current purposes only. 
Q. Do you really think it is sound banking practice for any bank to advance 
more than its paid-up capital, to risk it in any one loan?---A. No, I do not. 
Q. Do you see any reason why this Committee should not put that in the 
Bank Act?---A. The matter was considered last session. I believe there is a 
clause for the purpose of limiting that. In other words, there has to be a 
certain voice of the directors before such a thing can be done. 
Q. Wc have already found out that the directors do not direct. I think 
that has been freely admitted?--A. I think you must be thinking of conditions 
previous to the passing of the Act last session. 
Q. :No, I remember quite well the amendment passed last session?-qA. 
There is no evidence during the past twelve months that directors are not 
directing, Mr. Coote. 
Q. In your opinion, the directors we have now are really directing those 
banks?---A. I think there is a larger realization of their responsibility, and I 
think they are more earnestly applying themselves to the task of directing 
their banks. 
Q. Do you think that the director of any bank which has 40 per cent of its 
loans outside of Canada can really be well acquainted with the true condition 
of the bank? A. I think he may, if his means of information are sufficient, and 
if the information can be made sufficient. 
Q. On whom is he relying for this information?--A. He will rely upon his 
general manager. 
Q. The general manager furnishes him with the fullest information?--A. 
And collateral information, of course; reports, and he may have personal 
knowledge. It is pretty hard to say just what considerations would enter into 
[Mr. George Edwards.] 

14-15 GEORGE V, A. 1924. 
the mind of the director, or how far his knowledge goes with reference to 
transactions of that kind. 
Q. What possible knowledge would he have of loans, for instance, in Cuba 
and other West Indian points?--A. Well, these loans are all reported upon by 
the managers of the Cuban branches, by inspectors who are going over the 
accounts all the time; and directors very frequently take trips there and 
investigate conditions on the ground. I have known that to be done. 
Q. Yes, Mr. Edwards, but you would not surely try to lead this Committee 
to believe that the bulk of directors, or all of the directors, can make those 
trips?--A. I do not know why they cannot. I do not suppose they do, but I 
suspect that certain directors will make the trips, and the other directors will 
place a certain reliance on them. 
Q. There are certain directors who would be principal directors, and the 
others would be lesser directors?--A. They may have directors more fitted for a 
certain duty than other director.-:. 
Q. The duty of directors is to safeguard the interests of the bank, is it not? 
--A .Yes. 
Q. Do you see any objection to directors, each year, furnishing a sound 
statement to the shareholders at. the annual meeting, stating what their opinion 
is in regard to the affairs of the bank?--A. I think that would be very desirable, 
if they did. I think they subscrile to the report. I think they are committed 
already in the procedure as it stands now. 
Q. It seems to me, Mr. Edwards, that as it stands now, you are asking a 
director who possibly hves in Winmpeg to certify to something he knows nothing 
about, except by hearsay?--A. If he agrees to accept that responsibility, Mr. 
Coote, I do not know why he should not. That is his privilege as a director of 
the bank. It must be assumed that he is doing it intelligently, and sincerely, 
whatever he does. 
Q. Is that not assuming a good deal? Let me ask you another question. 
Would you, Mr. Edwards, as a bank auditor, say that you could judge the true 
condition of affairs of any bank carrying on 40 per cent of its business outside 
of Canada, if you only examined its chief office or head offiee?--A. My answer 
to that would be, it would depend on what information I could obtain with 
reference to the business outside of Canada. If the information was sufficient 
to satisfy me, I could. 
Q. One more question with regard to the liability of directors. Would it 
not be quite proper to increase the financial liabilities of directors over that 
which is now provided in this Aet?--A. Well, directors, of course, are already 
under the Act under certain liabilities that do not attach to the ordinary share- 
holder. As a rule directors are amongst the largest shareholders of the banks, 
and if anything goes wrong with it, they would be the largest individual losers. 
The double liability provisions will fall most heavily upon them. It is natural, 
I think, that the small shareholder should trust the large shareholder who 
might happen to be a director, and who is put in that position because he 
believes his individual interests are great enough to permit him to look after 
the affairs of the bank. 
Q. A kind of blissful trust?---A. You have to trust somebody. Somebody 
has to be trusted in this world. 
Q. Would it not be putting real teeth in the Bank Act if we stated that 
any director's property to the extent of 50 per cent of his estate would be 
turned over to assist in the liquidation of the bank if it failed?--A. I cannot 
offer any opinion as to that. If a director does his duty honestly, sincerely and 
intelligently, I do not know at the moment why he should be penali.ed, because 
after having done that, he happens to be a director. 
[Mr. George Edwards.] 



By Mr. Shaw: 
Q. Surely it would improve the position of the depositors?---A. 

I do not 

By Mr. Irvine: 
Q. What would you do with the two million dollars? 

By Mr. Shaw: 
Q. You would have another two million dollars to add to the general fund? 
- A. Yes. It is too much for my mental calculation, Mr. Shaw. 
By Mr. Ladner: 
Q. Do you know the opcratiou of the Finance Act of 1914 for re-discount- 
ing?---A. Generally. 
Q. Have the banks taken any greater advantage of it since the last session 
of Parliament--greater than they did before?--A. I could not tell you that. 
I have not looked that up. 
Q. I made this statement because I remember seeing something in one of 
the reports of tile bank that they felt more disposed now to take advantage 
of the re-discounting facilities under the Finance Act, than they did prior to 
the revision. Have you any knowledge of that question?---A. I have no doubt 
of it. 
Q. Is there any shifting of deposits, to your knowledge, since the failure 
of the Home Banks, from the smaller banks to the larger banks, or from the 
smaller banks to Govermnent securities throughout tile country?--A. I have 
heard that is the case, but I have not confirmed it myself. 
Q. Have you made any examination, prior to coming here, of the returns 
by the banks under the Bank Act? A. Not quite recently, no. 
Q. Do you know that at the present time approximately 70 per cent of all 
bank deposits are in the four largest banks?--A. I believe that is the case. 
Q. And 30 per cert is distributed amongst ten other banks?--A. Yes. 
Q. Do you know that in 1890 the figures were exactly reversed? A. There 
has been a tendency towards an increase of deposits in the larger banks. 
Q. In view of the failure of the Home Bank and the concern of the public, 
do you think that that tendency will continue? A. I cannot say, but the pro- 
cess of reduction in the number of banks has been going on. There are only 
fourteen now. where there were seventeen last year, but whether that will con- 
tinue or not, I do not know. 
Q. Then taking the experience of the last thirty-three years as an index, 
and taking present day events as you have seen them, with mergers and the 
failure of the Home Bank, do you think it possible for the smaller banks to 
reduce their overhead in the future? A. I think it is a very serious question. 
The expense element since the war has not come down. 
Q. I am advised by a man skilled in finance in a practical way, that with 
the establishment of branches it is difficult for any of the banks to materially 
reduce their overhead. Have you any information to the contrary? A. I have 
not, at the moment. 
Q. Do you agree with that statement? A. I think it is a very probable 
Q. Then, if you continue the transfer of the deposits to the larger banks by 
reason of the shaken confidence of the people, do you not think that some 
measure is essential at tile present time to maintain the stability of the smaller 
banks in order to retain them in the field of competition?--A. I think it is very 
desirable, if they are sound. 
[Mr. George Edwards.] 

14-15 GEORGE V, A. 1924 
bank inspection would be most unfair. I submit to you, sir, that we should not 
be prevented from asking further questions on that point. 
Mr. HEALY: That is not suggested. 
Hon. Mr. STEVENS: Mr. Healy said he understood the thing was closed. 
Mr. HEALY: As far as his own opinion goes, but I did not say you could 
not ask another question. 
Hon. Mr. STEvEns: I have been waiting for a chance to ask Mr. Edwards a 
few questions; I have waited a long time, and I will wait a week if necessary, 
but I do ask for the opportunity of asking two or three questions. 
The VIcE-CHAIIRMAIN: Air. Ladner, will you proceed? 
Mr. LA)Ea: I have no questions on bank inspection; I have five questions 
on double liability, but that is a separate matter altogether. 
The rIcE-CHAIRMAN: Very well; Mr. Marler, have you some questions? 
By Mr. Marler: 
Q. Just one question, Air. Edwards. In the course of Air. Coote's examina- 
tion, the question came up regarding the question of loans made by branches, 
loans made by distant branches and loans made by principal branches. That 
is to say, branches where the head office itself may be situated.--A. Yes. 
Q. Now the question also came up regarding the power of branch managers 
to make loans; I think you remember that.--A. Yes. 
Q. Mr. Coote did not pursue that subject at that particular moment. What 
I want to bring out before this committee and what I want to ask is this. Is it 
not the case that in any branch a loan of equal size can be nmde or negotiated 
.iust exactly the same as if that loan were applied or in one of the large city 
branches?--A. I think that is so. 
Q. In other words, the branch manager may be restricted in making a loan 
himself without reference to head office, but a reference being made to the head 
office, that branch can get any amount it wants for legitimate purposes in 
precisely the same way as a principal branch could get it from the head office, 
in just the same manner? In other words, there is no distinction whatever 
between loans by country branches and loans in so-called head office branches. 
Air. SALES: You do not mean for any amount? 
Mr. hIARLER: Any amount that could be got in any branch can be procured 
in a country branch for a legitimate purpose. 
Mr. HEALEY: That is perfectly right. 
Mr. SnLEs: We often hear in the West that they have not any money; 
they are not loaning. 
Mr. VIAILER: They have not any money to loan? 
Mr. SALES: Yes. 
Mr. hIARLE: I am astounded to hear that, because I have always under- 
stood that providing security was put up at a branch, that branch has equal 
facility with any other branch. 
Mr. SAES: What do you mean by " facility?" 
Mr. HEALEY: I would suggest that we put Mr. Marler in the witness box. 
Mr. VIARLEI: I am quite prepared to do that; I have no objections. 
The VIcE-CHAIRMAN: If it is the desire of the committee that Mr. Marler 
be asked a question, I am quite willing to accede to it, but I think we will make 
more progress if Mr. Marler goes on with Mr. Edwards. We have Sir William 
Stavert who has been waiting since yesterday and again to-day, and I would 
suggest that we go on with him. 
[Mr. George Edwards.] 

By Mr. Marler: 
Q. In your opinion, Mr. Edwards, are the facilities offered at the smaller 
branches equal to the facilities afforded at so-called head office branches?--- 
A. Yes. 
Mr. COOWE: Just what do you mean by the word " facilities?" 
Mr. hARLER: I mean access to the money of that particular bank. 
Q. In other words, if a bank has so much money to lend, any branch has 
equal tacilities for securing a loan from that money as a so-called head office 
branch ?---A. Yes. 
Mr. I-IuoHES: In practice it does not work out. 
By Mr. Cahill: 
Q. I would like to ask Mr. Edwards if he believes that his answer to Mr. 
Marler covers the point, by saying, "Yes". Does he believe that the facilities 
in the branch bank say at Okotoks, Alberta, are the same as those of the head 
office of the bank at Montreal, or that the manager of the smaller bank has the 
same power as the manager of the bank in Montreal who is immediately under 
the supervision o,f the head office, of the general manager, and of the Board of 
Directors? Does he think the man in Alberta has the same facility for getting 
loans through the Bank of Montreal as the man applying for them in the city 
of Montreal office, which is immediately under the supervision of the head 
office.--A. Ob-iously the distance w.ould require a little time to put it through, 
but I think if there were an industry say in Montreal that was borrowing money 
from one of the banks, and that industry should find it expedient to remove its 
whole plant and machinery to Okotoks, they could transact their business in the 
same way as they could in Montreal. 
Q. That is exactly the point. Where there is an opening at Okotoks, in- 
stead of a local man there developing it, it is developed by a man from Montreal. 
That is the whole point of the banking situation.--A. I will put it the other way, 
sir. If there were an industry in Okotoks which had a basis for credit and re- 
quired to borrow money from the bank, it could borrow money from the banks 
equally as well as if it were located in Montreal; if it were moved to Montreal 
it could not have any better facilities tor borrowing money. 
Q. Do you think the recommendation of the bank manager at Okotoks for 
a considerable loan would receive the same consideration at head office that 
would be given a recommendation from the general manager of the principal 
branch in Montreal who is in a position to walk into the office of the general 
manager and state his case to him?---A. I think the same investigation would 
be made and the same consideration given to it. 
The VICE-CI-IAIRI,IAI: Mr. Good, have you some questions to ask? 
Mr. GOOD: I think in view of the time; that Mr. Edwards will be back 
another day, I will reserve my questions till later. 
The VICE-CHAIRMAI': Very well. :Now, Mr. Stevens. 
By Hon. Mr. Stevens: 
Q. I will try to be as brief as I can, in just a few pointed questions. Mr. 
Edwards, you have had a good deal of experience in general auditing as well as 
bank auditing, and in regard to the matter of the opportunity of shareholders 
ot a bank attending annual meetings; is there any difference between the posi- 
tion of the shareholders of a bank and those of any other corporation in respect 
to the attendance at annual meetings and participating in control is concerned. 
---A. He has the same statutory privileges. 
[Mr. George Edwards.] 

14-15 GEORGE V, A. 1924 
Q. And the same general opportunity as the shareholder of any large cor- 
poration?---A. I think so. 
Q. In your experience as an auditor, the question of reports from branch 
offices comes very prominently into this discussion, could you tell the com- 
mittee if, in your experience, the reports of branch managers are in the main 
and generally proven to be trustworthy and satisfactory.--A. I think so. I think 
in tile mass they are satisfactory. 
Q. Have you in mind any specific cases without necessarily naming ghem. 
but in a general way any specific cases where larger losses have occurred to a 
bank through false returns or faulty returns and reports from branch managers? 
--A. I do not know of them. That is renmte. 
Q. Yes. That is outside principal offices.--A. I do not know of them. 
Q. I might put the next question in the form that is usually followed, that 
is in the form of a statement, and ask you to agree with it, but I will not follow 
a bad practice. Turning to clause 56, subsection 10, provides for reports. I will 
not read the clause because it is unnecessary to do so. It provides that an auditor 
shall report certain things to directors and so on, including loans exceeding 1 per 
per cent and so on. If that report were made obligatory to the Minister of Finance 
--I asked this question the other day and I do not think it was quite clearly 
demonstrated--if this were made obligatory that these reports should be madc 
to the Minister of Finance as well as to the directors and the general manager, 
do you think it would afford to the public increased protection?--A. I do, in 
this way, that if the Minister was aware of the action of the auditors, he could 
supplement that action by ascertaining and calling upon the auditors from timc 
to time to report to him as to what the directors had done in respect to these 
matters to which their attention was called, and the whole tendency would be 
good. It would tend to increase the confidence of the public by the knowledge 
that these matters were being looked after in that way. 
Q. Short of intentional and fraudulent action on the part of the directors 
and general managers, in your opinion does the present Bank Act as renewed 
last year offer to the depositors and the public a maximum of security and pro- 
tection, short of deliberate fraud.--A. I have already said that I think it could 
be supplemented in that way, by a superimposed inspection. 
Q. With that one addition?--A. With that one addition. 
Q. Just a further question in regard to that. Having in mind the Govern- 
ment inspection of head offices, if a bank directorate or management were desirous 
of making questionable loans such as have proven in the past to bring about a 
failure, or almost a failure; if they desired to make such loans in the face of 
Government inspection, would it not be possible for them to make these loans 
through the medium of some branch office not closely identified with the central 
office, and thus escape the inspection, the Government inspeetion?--A. They 
might escape direct inspection by the Government officer, but they would come 
under the system of inspection followed by the bank and the procedure of the 
banks, the inspection system would be a matter of scrutiny and inspection by the 
Government auditor. I think the Government auditor would get it, but. in 
another way. 
Q. Of the two sugestions, namely a direct inspection by the Government 
examiners or the improvement or extension of clause 10 in the way of reports, 
which do you consider would give the best protection to the public and to the 
depositors? A. I think the extension of the present system would afford by far 
the best protection to the public of the two methods. 
Q. That is in the matter of reports to the Minister, and strengthening clause 
10 along the line suggested?---A. Yes, keeping the Minister supplied with full 
information, and enabling him to act, with an officer to act for him and to take 
e initiative in some eases. 
[llr. George Edwards.] 

14-15 GEORGE V, A. 1924 
It may therefore be concluded that given skill and honesty, there is probably 
no better system of bank inspection or examination than that practised by Can- 
adian banks in the past. It is the Scotch and English system which has, with a 
single startling exception, stood the test of generations with a gratifying degree 
of satisfaction. 
Additionnal safeguards which are provided for in the lately revised Bank 
Act have no doubt improved conditions and if others can be discovered it would 
be well to consider them with a view to their adoption. 
In the minds of the public and of those who seek to provide safety for 
depositors the system of ordinary inspection, as it has been practised for many 
years by successful banks, does not received much consideration. Government 
inspection or audit by public accountants is somewhat similarly regarded by the 
banks, but I think it may be said that all systems have their advantages and 
that the banks in Canada are at present enjoying those advaantages in com- 
bined form. 
What has happencd in the recent past need not here be reviewed as the 
events are fresh in the minds of all concerned. The object is to avoid a 
After giving the whole subject careful consideration in response to the 
summons of this Committee, I am of the opinion that the presently improved 
provisions of the Bank Act can be availed of to meet all requirements by a 
comparatively simple modification which can be adopted forthwith and which 
I have the honour of suggesting as follows:-- 
Let the Act be amended to provide for an organization over which will 
preside a man of wide experience in Canadian banking and of approved judg- 
ment, whose duty it will be to receive copies of reports in detail, including 
details of branches near and remote, which will be made by the audit accountants 
as presently provided for, to study and criticise conditions and methods of man- 
agemcnt as revealed by such reports, to check estimates of values of assets as 
made by the accountants, to communicate his criticisms to the general managers 
of the banks concerned in Board meetings assembled by correspondence, to 
keep closely in touch with banks as a whole, and to personally visit the head 
office of each bank as well as the larger branches at his discretion yearly, at 
least, or preferably twice per year, for the purpose of looking into conditions 
at close range and discussing the various aspects of the situations as they exist 
and are revealed and generally to do such things as are in his opinion necessary 
to determine the actual position as far as possible. 
My experience enables me to state that the right kind of man would very 
soon discover irregular methods and would discuss them with the management. 
His service would not be so much in the nature of a secondary inspection, 
or examination of the efficient and economical functioning of the bank which he 
would be visiting as in a comprehensive view. That would be for the inspector 
of the bank, the management generally and for the accountants acting for the 
shareholders. The principal roll of the man I have in mind would be to view 
the situation comprehensively in the light of the information he would be able 
to obtain from studying the reports of the accountant auditors, the reports of the 
inspectors of the bank, the credit information files and the current operating of 
the principle accounts at head office and branches. He should have the 
authority now enjoyed by the accountant auditors and the Minister of Finance 
under Articles 56 and 112 of the Act, to call for such infornmtion as he might 
require from time to time, and he would know what he should have and fall 
for it. 
It would be the duty of such a man to report to the Minister of Finance and 
in the event of difficulties arising to make recommendations to the Minister and 
[Sir William E. tavert.l 

failing, the taking of such action as might be recommended to consult with a 
small Committee of the Bankers Association to be appointed for the purpose, 
and to act without prejudice or responsibility. 
Such a system might not prevent bankruptcy where the mistakes had been 
made previous to the adoption of the system or might have been made in 
defiance of the safeguards provided, but. would have a very wholesome influence 
on those who might be tempted to go wrong, and would have the effect of 
preventing questionable practices or methods or of checking them in the bud. 
It would also prevent and determine that struggle which so often takes place 
when too late to restore conditions, and which usually ends in confusion worse 
confounded as in the recent cases we know of. 
Such a position should command a libcral salary and the appointment should 
be strictly non-political. I suggest that the appointment should be by the 
Supreme Court of Canada, or the Chief Justice, or other judicial authority in 
the absence of the Chief Justice, and I think that the amendment in providing 
for such appointment should also provide that the Chief Justice would be 
expected to hear representatives, say presidents or general managers, of the 
principal banks, on the subject of the capacity and ability of nominees or 
applicants for such appointment. The amendmcnt should further provide that 
it would be the duty of such representatives of banks to supply the information 
so far as they might be able to on being called upon, and that their act in so 
doing would be without prejudice or responsibility to themselves or the banks 
they represent. 
The expenses of the organization, including the salary of the presiding officer, 
might be borne by the banks in the proportions of the assets of each, as shown by 
their statements. 
It may be objected by some that the plan would attach responsibility to 
the Government in the event of a disastrous failure. The answer to such an 
objection is that the Government has always had a certain responsibility, if 
only moral, because of providing a Bank Act and for certain returns and super- 
vision, which responsibility was somewhat increased at the time of passing the 
present Act. The further increase of responsibility under this plan is very small, 
especially when the safeguards are considered, but what is the responsibility at 
most? It is held that there is no legal responsibility and the amendment could 
emphasize that. It may also be observed that in the United States active and 
dominating examination of banks is carried on by the Government and no 
question of financial responsibility has ever arisen. 
The amendment should also provide that the personnel of the organization 
will hold office at the pleasure of the Court or Chief Justice. 
Such assistants as the presiding officer of the organization might require 
should be of his own selection, and salaries should be on the scale of salaries 
paid by banks for similar duties. 
It should be understood that the organization would be conducted economi- 
cally by avoiding detail in routine, depending upon the staffs of the different 
banks and the audit accountants for such detail as might be necessary. In 
other words, the organization should be conducted as if it were a section of 
the Finance Department, which after a manner it would be. 
By Mr. Shaw: 
Q. Have you examined the amendment proposed last year by Mr. Woods- 
worth, the Member for Central Winnipeg, dealing with this very matter?--A. :No. 
Q. He presented to this Committee and subsequently to Parliament an 
amen_dment which is substantially on all fours with the proposition which you 
now make. You have not had occasion to examine that?--A. :No. 
[Sir William E. Stavert.] 

14-15 GEORGE V, A. 1924 
Q. With regard to your suggestion: You suggest that the expenses of this 
work should be borne by the bank?--A. Yes. 
Q. Is the object of this organization to protect the public or protect the 
bank? A. The public. 
Q. And why should not the public pay for their protection?--A. That is a 
Q. But is it not rather important?--A. No, sir. 
Q. If you have men paid by the Government they are responsible to the 
Government; if paid by the bank, the question might be different.--A. Perhaps 
Q. They are under a misapprehension as to where the responsibility lies. 
So you would not object to the payment of such an organization by the Gov- 
ernment? A. No. 
Q. And now you suggest that there is no responsibility on the Government 
in the event of inspection?---A. Yes. 
Q. Is there any responsibility on the Government in the event of its failure 
to make any inspection?---A. There might be. 
Q. So that you would agree with what hlr. Edwards said this morning 
that this failure to take every safeguard including the inspection wouhl invite 
respgnsibility on the Government?--A. Yes. 
Q. And it is not, on the other hand, that inspection invites responsibility?-- 
A. No--exactly. 
Q. Now, if you decide on this plan which you have suggested, Sir William. 
have you gone into any other matters tlmt would assist in protecting depositors? 
--A. No, I cannot say I have. 
Q. Are you familiar with the Reserve or National Bank System? A. By 
Q. Have you made any investigation of it?---A. No. 
Q. So that I take it that on that field you would not feel that you were 
speaking with the same authority as you do in connection with the Canada Bank 
Act with which you are more intimately associated?-A. Exactly. 
Q. It was suggested, Sir William, that there never had been any losses to 
note-holders in this country. Do you know, as a matter of fact, whether that is 
so? A. I do not know of any losses ever having occurred to note-holders in 
recent years. 
Q. There were some, I believe, before this section of the Bank Act dealing 
with the security of the notes was providedY--A. Previous to the formation--- 
By Hon. Mr. Stevens: 
Q. How long ago? 
Mr. SHAW: I am speaking only from recollection. 
Q. Do you know, Sir William?---A. The Bank of Liverpool and the Bank 
of Acadia-- 
By the Vice-Chairman: 
Q. No, how long ago, Sir William? 
By Mr. Shaw: 
Q. Since losses were suffered by note-holders?--A. It mu be fifty-five 
Q. In any event, Sir William, it would be before the inauguration of the 
present system?---A. Yes, sir. 
Q. With regard to that, the question of the priorities--were you in the room 
this morning?--A. Yes, sir. 
[Sir Wil]iara E. Stavert.| 

advised in the appointment by the presidents and managers of the leading 
banks in Canada? In 9 cases out of 10, and perhaps in 99 out of 100, would he 
not accept that advice in making the appointment?--A. I think he would accept 
that advice. 
Q. And in reality, therefore, the appointment would be made by the presi. 
dents and managers of the leading banks that is what it would really amount to: 
though confirmed or ostensibly named by the Chief Justice of the Supreme 
Court.--A. It would have that effect, subject to the judgment of the Chief 
Q. Well, I think myself, if you will permit an expression of opinion, that 
it would be a better method of selection than an appointment by the public 
or by the Government or by Parliament.--A. Thank you. 
Q. Then there is a suggestion made, or rather a suggestion has been made-- 
in fact there is a resolution before the House of Commons that the depositors 
in the banks be safeguarded; that the smaller depositors in the banks, say up to 
$3,000 be safeguarded by the creation of a fund similar to the Redemption 
Fund with regard to the notes in circulation now. 
Air. MChIAsTER: I hardly think that is quite fair to Air. Ladner, whcn he 
thought the matter was not going to come up. 
Mr. HUGHES: Very well, I will not continue any further with that. I just 
thought it would be a good time to get the experience of the present witness on 
that subject. 
By Mr. W. F. Maclean: 
Q. Would you limit it to one name being submitted to the Chief Justice, 
or any number? A. Any number, of course. 
Mr. MARLER: IS it permitted to ask the witness a question that may not 
be strictly germane to the question of bank inspection? 
The VIcE-CHAIRMAN: Yes, I think so. 
By Mr. Marler: 
Q. I simply want to ask one question, a question which I brought up this 
morning as regards the facilities given in country branches, or branches outside 
head office branches--I think Sir William and the committee will understand 
very well what I mean. Are the facilities of banks equally at the disposal of 
the branches I first referred to, as they are at the disposal of the branches I have 
secondly referred to?--A. Quite. 
Q. In other words, branch bank managers have equal facilities of the bank 
funds towards their customers as managers of the larger branches in the large 
centres?--A. Yes. 
By Mr. Spencer: 
Q. Following up the question that Mr. hlarler asked you, I would like to 
know if you are aware of this fact, that when clients of our various branch banks 
have asked for certain lines of credit, although the)" are admitted to be good 
safe clients, they have been turned down for the simple reason that instructions 
have been given from headquarters that no more credit must be given out to 
certain particular branches?---A. I have heard of such excuses having been 
given, but I have always found in cases where they have been given that it was 
a flight of the manager's imagination. 
Q. I know for a fact that the statement has been made by managers?--A. 
Quite so. 
Q. While I am on my feet I would like to ask another question. You made 
the statement a few moments ago that you considered that the inspection of the 
[Sir William E. Stavert.] 

14-15 GEORGE V, A. 1924 
Canadian banks was a better system than the inspection in the United States. 
Would you mind giving the committee the reasons for that? Or am I stating it 
correctly?---A. I did not say that. What I said was that our system of inspec- 
tion as has been practised for many years, which is the Scotch and English 
system, was giving gratifying satisfaction. I did not compare it with the system 
in the United States. 
Mr. SPENCER: I beg your pardon, I thought you did. 
By Mr. Good: 
Q. You mean the system now followed by the banks with their branches.-- 
A. Yes. 
Bg Mr. McTaggart: 
Q. There was a question suggested to my mind in relation to the branch 
banks, and I would like to know for information only if the loans at branch 
banks must bear a relationship or be in a certain proportion to the deposits at 
the branch bank?--A. Not at all. 
Q. There is no relationship?--A. No. 
Bg Mr. IV. F. Maclcan: 
Q. Is it your opinion that small banks can do no more for their respective 
localities than the branches of large banks with head offices some distance away, 
or is there not room in this country, notwithstanding our past experience, for 
the development of smaller banks intimate with their locality and its require- 
ments?--A. My experience has been that branch banks in localities where there 
are small banks have the most desirable business of the locality, one reason 
being that the customer's affairs in the case of the branch bank are known only 
to the manager, while in the other, they are known to a Board of Directors. 
By Mr. McMaster: 
Q. Do you regard that as a disadvantage?--A. I am simply stating what 1 
have observed. 
By Mr. Irvine: 
Q. Have you had experience with a small bank which was not a branch 
bank? A. Yes. 
By Mr. Garland: 
Q. Just one question. Is it not true in Canada that the smaller branch 
bank managers have a discretionary, loan limit which is considerably less than 
the loaning limit, say at larger branches in cities, or in the central branches?-- 
A. The authority does vary, but very little. 
Q. I am afraid I must disagree, out of my own knowledge. For example. 
if you can give the committee the discretionary limit of the branch bank of the 
Bank of Montreal in Toronto, I can give you the discretionary limit of the 
branch bank of Montreal in my town, and I think we will find a very consid- 
erable disparity. Therefore, the facilities are not alike. 
By Mr. Marler: 
Q. Before you answer that question may I say a word? It may be true, 
and I admit it is true that a branch manager has not got the power to make a 
loan, so to speak, on his own authority, but that self-same manager has com- 
mand of all the funds at that bank for making a proper loan on referring the 
matter to his head office. Am I not right there?--A. Yes. 
(Sir William E. Stavert.] 

Committee on Banking and Commerce, particularly since 1921, my associations 
with the members of the Committee have been so pleasant, and I have been 
able to realize and to have such faith in the sincerity of purpose of all hen. 
members of the Committee, that I shall bank on their hearty co-operation. 
accept the honour and will endeavor to discharge the duties of nay office to the 
best of my ability. I can only hope that I shall be able to live up to your 
Gentlemen, I must eonmmnicate to the Committee a letter from the Speake 
of the House of Commons to the Editor of Debates and Chief of the Reporting 
Branch of the House of Commons. This letter relates to the rules in respect 
to the reporting and printing of proceedings of Committees. It will be printed 
in our record, and I think it will save time to have it printed in our proceedings 
so that hen. members will be able to take cognizance of it in to-morrow's report. 
(See page cxlix.) 
" Notices of motion " called. 
Mr. W. F. MACLEAN: Will you please announce the programme in regard 
to witnesses? 
The CHAIaMaN: I shall do that in a minute. I have a notice of motion 
from Mr. Spencer which reads as follows:-- 
" That the Bank Act be amended to provide that tile moneys in 
the Circulation Fund shall first be applied to the payment of the notes 
of a bank which has suspended payment and that the other assets of the 
bank be not applied to the payment of such notes until the moneys in the 
said Fund are first exhausted." 
Any other notices of motion? 
Gentlemen, we have the pleasure of having with us this morning Mr. John 
W. Pole, Chief National Bank Examiner of the Department of the Treasury a-t 
Washington. Mr. Pole has been kind enough to come and give evidence on the 
system of bank inspection as it now exists in the United States. He will be our 
first witness. Then we shall have the pleasure of hearing Mr. Skelton Williams 
on Thursday next. Mr. Pole is at our disposal for to-day and to-morrow. 
Hen. Mr. STEVENS: May I suggest, Mr. Chairman, that in our proceedings 
with Mr. Pole, we should permit him to make his complete statement before 
asking questions; otherwise, I am afraid that owing to the tendency of Com- 
mittees of this kind to ply witnesses with questions we might lose some of the 
value of his statement. After he is through, I presume he would have no 
objection to answering questions from members of the Committee. 
The CramaN: I think Mr. Stevens' suggestion is very good indeed. It 
is along the lines of our rules of procedure as determined at the opening of our 
sittings that the witness be allowed to make his statement and then hen. members 
who wish to put questions can do so. 
Mr. W. F. MaCLEAN: How long may we expect to have this witness here? 
The CaMaN: To-day and to-morrow. Meantime, Mr. Edwards' evidence 
will be suspended so as not to delay the two gentlemen who come from the United 
Mr. HUGHES: Should there be any limit to the time that one member 
occupies in exanfining the witness? 
]Vr. McMAsTER: We must leave that to the discretion of the Chairman. 
He will rule wisely and justly. 
The CHUmMed: I think it would be unfair to put any limit on hen. mem- 
bers. Some members are more interested in putting questions than others. As 

14-15 GEORGE V, A. 1924 
as illustration, the examiner in charge goes in with perhaps three assistant 
examiners and fifty assistants; while in the smaller banks one examiner with 
one assistant will handle the proposition. With the exception that no loans 
are verified with the makers and no deposits are verified, an audit is made. 
In addition to this, and this is regarded as even more important especially as 
the larger banks maintain an auditing department of their own, the bank's 
assets are carefully analyzed and a report is made specifying these assets as 
"slow", "doubtful", or "losses", us t'he case may be. Would it be of interest 
to the Committee if I gave the character of some of these questions which are 
askecl in the course of examination? 
Form filed as EXIIBIT No. 1 (Not printed). 
The CrAmM.: I think that would be a good plan. 
The WITNESS: That would give a very good idea of the general scope of 
the examination. On the first page xve have the bank's statement, that is, 
Exhibit :No. 1, examiner's report of the condition of the bank. It gives the 
name of the president and the cashier, and it gives the bank's statement cover- 
ing all the resources and all the liabilities, of cottrse. 
By Mr. Hughes: 
Q. That statement is made out by the officers of the bank?---A. That 
statement is taken from the general ledger, sir, by our examiners. The bank 
officers and the bank clerks render very little assistance to us. We do not 
require it, and we do not ask for it. "This is taken from the bank's books 
direct. The we have the contingent liabilities. Following that are the names 
of all t'he directors of the bank, t,hcir post office addresses, and the number of 
shares which they own, the number of meetings which they have attended since 
the date of the last preceding examination, and with that is information as 
to the liabilities of the directors, both individual and firm. We also have the 
liability of the directors as endorsers or guarantors, and the directors' occu- 
pations, so that we have the total borowings from the bank both direct and 
indirect., to which we add the loans to the officers and employees or directors. 
After that. we list the total loans to corporations in which the directors are 
interested. That is a very important schedule. We have the officers and 
employees then, the president, the vice-president, the cashier and the assistant 
cashiers, and their liabilities. There are questions as to bonding; that is 
the surety bond; to what extent t'he officers are bonded; xxhether they are 
surety or personal bonds; whether the bonds are adequate; whether they are 
in force, and if so in whose custody; were they inspected, and as to the approval 
of the bonds by the Board of Directors. Under the heading of "Loans and 
Discounts" is included list of industries or classes of borrowers to whom loans 
are being made; is the distribution satisfactory, both as to class of borrowers 
and amount of loans; "state as to the general character of collaterals and advise 
if a collateral register is maintained"; "List direct and indirect loans to cor- 
porations or enterprises in which any director or officer is largely interested, 
giving the name of interested director or officer." If any borrow unduly, it 
is listed on one of these other pages. " Any liability of directors, or officers, as 
makers, or endorsers, whic:h is subject to criticism; describe fully and give 
reasons"; "state whether all paper claimed by the bank as to property, includ- 
ing collateral, appears to be pro,perly endorsed or ass.igned to it. and all mort- 
gages properly recorded and all collaterals accounted for." The next item is 
with reference to the rates of interest which are paid, the highest and the 
lowest and the average rate. "Does the bank place paper with other banks: 
and what is their liability in connection with that?" " Does it dppear to be 
a liability?" "Is it covered by endorsement--" 
[Mr. John W. Pole.] 

By Mr. Hughes: 
Q. " Placing paper"; that is, dis'counting it?--A. No, placed paper. We 
call it " sold paper," but that is not re-discounted paper; it is paper which is 
perhaps sold to another bank and ostensibly without recourse, and very 
frequently with a side guarantee on the part of the sending bank which estab- 
lishes its liability, although that liability would not appear on the books. It 
is an important tiling, because many banks have got into trouble through that 
source. It is a dangerous practice, but is indulged in quite frequently, especially 
in the west. 

Bg Mr. McMastcr: 
Q. Will you explain that practice, please?---A. This bank has a line to a 
customer which perhaps is pretty nearly up to the limit in order that it may 
dispose of some of this paper it sells it to one of its correspondcnts so that per- 
haps it may take on a further line with this party, and endorses the paper with- 
out recourse, perhaps, and that vould dispose of it as far as the scnding bank's 
liability is conccrned, but tile cashier will send a lctter advising the receiving 
bank to charge that up to the sending bank's account when duc, and that it will 
be taken care of, which constitutes a guarantee. That is the practice indulged 
Q. What is the advantage of endorsing without recourse?--A. So that the 
liability may not appear on tile bank's books. " List certificates issued by other 
National Banks, saying how carried, and giving full information." Then there 
is a list made of all other National Bank stock, giving the names of the bank. 
The next item is with regard to the credit data which may be available in the 
bank, and as to the credit files and credit infornation. Then we go on and make 
a list of all the loans which are statutory bad. That is, any loan upon which 
no interest has been paid within six months, and which is not well secured and 
in process of collection. That is a statutory bad debt. That is listed. The 
other overdue paper is of course listed, and scheduled in detail so as to show 
the aggregate of overdue paper in ratio to the number of loans which are made. 
We next make a schedule of the loans which are in excess of the limit. That 
is a practice which banks ind.ulge in quite freely-- 
By Mr. Maclean: 
Q. Who makes that limit?--A. That limit is fixed by law, Mr. Maclean. 

By Mr. Coote: 
Would you care to explain what that limit is?---A. That limit is in 
5200, of the National Bank Act, and covers a very wide range of excep- 

Q. Would you give it to us in a general way? A. In a general way the 
limit of loans is 10 per cent of the capital and surplus of the bank. 
By Mr. Maclean: 
Q. To one customer?--A. To one customer, but there are a number of 
exceptions to that. For instance, busines,s or commercial paper is an exception 
to that. Loans secured by commodities readily marketable, and non-perishable 
are. There are other exceptions Liberty Bonds and otherwise. The 10 per 
cent limit applies to he generalities of paper. I will file with you a schedule 
giving the various exceptions to the 10 per cen limit on loans. 
Document filed as EXHIBIT No. 2 (See page 80). 
[Mr. John W. Pole.] 

The WITNESS: Mr. Chairman, am I following about the line the Committee 
The CHAIRMAN: Very much so. 
The WTNESS: I am anxious to give you about what you want to the best 
of my ability. The banks are permitted to lend money on real estate; they are 
permitted to do so to a certain extent. They are permitted to lend money to 
single individuals, but not in excess of the 10 per cent of the capital and surplus, 
on real estate that is improved. 
By Mr. McMaster: 
Q. Up to any proportion of its value?--A. Up to 50 per cent of its appraised 
value, but not to exceed in the case of improved country property five years' 
maturities, and in the case of improved city properties, one year maturities. 
By Mr. Hughes: 
Q. Appraised by whom?--A. Not necessarily the assessed valuation, but a 
fair appraisement which has to be arrived at in the best way possible. 
By Hon. Mr. Crerar: 
Q. Which includes the iluprovcments?---A. Which include the improve- 
By Mr. Maclean: 
Q. And take into consideration any existing mortgages?--A. It has to be 
a first lien, and it has to be within the Federal Reserve District in which the loan 
is made or within one hundred miles of that District. A bank may loan to the 
extent, in the aggegate, of 25 per cent of its capital and surplus, or one-third of 
its time deposits on real estate. Under the McFadden Bill which has recently 
been introduced and which we hope will pass, as it clarifies the National Bank 
Act, and is the first real clarificatiou which the Act has had since 1865, the banks 
are to be permitted to increase their real estate loans up to 50 per cent of their 
time deposits, and in order that the city real estate loans may become more 
liquid the maturities are extended from one to five years. There is a market in 
the United States for loans which do not mature inside of five years, where there 
is none for loans which mature within one year. A bank, however, may protect 
itself by taking a mortgage or anything else in order to save itself from loss on 
a debt which has been previously contracted, either a first, second, third mort- 
gage, or anything else. 
The next very important item is the large lines. That is, large lines of credit 
which are not technically excessive but which are too large, perhaps, for the 
size of the bank, and generally regarded by the examiner as an undue extension 
of credit. All lines which are believed to be subject to criticism as representing 
unwarranted extensions of credit to the same or affiliated interests include loans, 
stocks and bonds and other forms of credit, and such lines which may be dis- 
proportionate to the bank's resources. These lines are listed together with the 
collateral. There is another schedule for other lines especially mentioned, which 
appear to be large, and upon which the credit information is so meagre that the 
examiner has no means of arriving at the value of these loans. The next is a 
schedule of current loans which are classified under " slow " " doubtful," and 
" losses "; following which is a schedule of the bonds and securities held by the 
bank, together with the character book value, and the market value. The items 
of real estate, other real estate owned. Then there are the banking houses. A 
National Bank is not permitted to own real estate other than for purposes of 
a banking house which it occupies or expects to occupy, but the bank does, of 
course, acquire real estate by reason of having to take it for previous debts, and 
that is usually an extremely slow item. 
[Mr. John W. Pole.] 

14-15 GEORGE V, A. 1924 
By Mr. Hughes: 
Q. How long is it allowed to hold that real estate?---A. That real c.tate 
may be held for five years. 
By Mr. Marlcr : 
Q. It can only be held for five years?---A. Yes. 
Q. What happens then?--A. The law requires it must be disposed of in 
five years. If it is not, it has to be disposed of as soon as it can. I think you 
carry it here for twelve years, do you not? 
Q. Yes? A. And there is a penalty if it is not disposed of within the time 
--is that correct? 
Q. Yes? A. But, one of the weak features of the National Bank Act is 
that the punishment more than fits the crime, very often. About the only remedy 
of that kind which the Comptroller has is to bring suit for forfeiture of charter, 
which, of course, would be an absurd thing to think ot in the event of the bank 
holding real estate longer than five years. 
By Mr. Hanson: 
Q. Do they ever resort to that?--A. I-Ie never has resorted to it. 
By Mr. lVoodsworth: 
Q. Could that five years be extendcd?--A. Of course, we are in this posi- 
tion; that if the bank acquires real estate, and after the time has elapsed--five 
years have elapsedit is not possible to dispose of it, there is nothing to do but 
to keep it, so that time is automatically extended, and nobody says anything 
about it, except to have it disposed of as soon as possible. 
By Mr. Spencer: 
Q. There is no enforced sale?---A. No enforced sale at all. 
By Hon. Mr. Crerar: 
Q. In that case it is carried as an asset of the bank?--A. Of course, as an 
asset of the bank. 
By Mr. lVoodsworth: 
Q. It this property should be transferred to a holding company, in which 
the bank controlled the greater part of the stock would this be considered as 
legitimate?--A. The bank, of course, would not be permitted to hold the stock 
in this affiliated company, but the directors might personally hold that stock, 
and if they saw fit, to take this real estate out of the bank, it would be perfectly 
permissible for them to do so. In other words, the bank would deal with that 
affiliated corporation as it would deal with any other disinterested corporation. 
Q. But the bank itself would not be permitted to control the stock?--A. 
The bank would not be permitted to control the stock, excepting that this stock 
control may be held through the shareholders of the bank itself. 
By Mr. Shaw: 
Q. In the case you suggest, the bank would have to have its claim paid in 
full?--A. Well, not necessarily have its claim paid in full. It might loan the 
corporation money to purchase the real estate, or it might sell the corporation 
that piece of real estate at a price which was regarded as fair, but not perhaps 
at its full value, at which it was carried on the books of the bank. 
By Mr. Wood'sworth: 
Q. Does that same rule apply to other subsidiary companies?--A. As regards 
[Mr. John W. lole.] 

Q. Yes?---A. With the exception of stock in safety deposit companies 
and stock in corporations organized to do a foreign banking business, and of 
course stock held by the National Bank in the Federal Reserve Bank must be 
held. Those are the only cases. 
Q. What about holding companies in the case of bank premises?--A. A 
bank may hold an interest in that. 
By Mr. Hughes: 
Q. An interest or a controlling interest? A. Either an interest or a con- 
trolling interest. Now, we were speaking of the banking houses--as to the 
valuation of thc banking houses, and as to whetlmr or not they are carried at a 
fair valuation, whether or not they were suitable and convenient, whether or 
not they are free of encumbrance, adequately insured, and as to the vaults, and 
so forth. 
By Mr. Coote: 
Q. Is there any limitation placed upon the amount which a bank may 
invest in bank premises?--A. There is nothing in the law to that effect. 
By Mr. Woodsworth: 
Q. How is the value of the bank premises determincd?--A. That might be 
determined on an income basis, or an appraisal basis, but the bank, as a general 
thing, carries its investment in banking house at a very conservative value, and 
an effort is made to see that this is done. 
Q. It is quite possible, however, to arrive at a fair value of the bank's 
premises?--A. Appraisement of bank premises is very frequently made by a 
Real Estate Board or a Board of Appraisers, or engineers, which may be 
appointed by the bank or by the Department, and if there is any dissatisfaction 
arising between the bank and the Department, as to the value of the bankino houses, the Comptroller has tim authority to have an appraisement made, and 
acts as he sees fit in that respect. 
By Mr. Spencer: 
Q. What percentage of the bank's capital is invested in the banking house? 
---A. There is nothing in the National Bank Act regulating that. That is at the 
discretion of the Board of Directors. 
Q. I understand that, but what is the usual percentage?---A. As a general 
Q. Yes?---A. It varies so widely it would be difficult to say. 
Q. What is the average?--A. I would say the average would be 50 per cent 
in small banks. It varies so widely I really cannot place an estimate on it. 
There would be no such thing as " an average." 
By Mr. Coote: 
Q. You have no figures?--A. I have no figures. 
By Mr. McMaster: 
Q. As a banker what do you think is a proper figure to invest in banking 
premises as compared with the total resources?--A. The conditions vary so 
greatly in the different communities that I would not care to express myself on 
that point. It is a point which has been discussed so very much but I do not 
think very much has been arrived at. 
By Mr. Maclean: 
Q. They do not decide that definitely in any bank?---A. No, but there is 
an effort made to keep down the carrying costs of a bank as much as possible. 
[Mr. John W. t)ole.] 

14-15 GEORGE V, A. 1924. 
By Mr. Woodsworth: 
Q. Has any suggestion ever been made that there should be a limit to the 
amount which may be borrowed by directors or officers?---A. I do not know 
whether that has been done. Of course, the State laws cover that very 
frequently, but it is usually nullified by some clause which requires a two-third 
vote of the directors. :No director may borrow beyond a certain amount unless 
he has a vote of two-thirds of the members of the Board, or something of that 
kind, which, of course, does not amount to very much. 

Bg Mr. Millar: 
Q. Is there a tendency on the part of the weaker banks to pay dividends in 
excess of earnings?--A. Yes, there is. 

Bg Mr. Hughes: 
Q. Tational Banks?--A. National Banks. 
Mr. hIILLAR: Yes. 

I understood you to say a dis- 

Bg Mr. Hanson: 
Q. Are they allowed to pay a dividend for tile current year unless they earn 
it?--A. Yes, provided their surplus account is in excess of 20 per cent of the 
Bank's capital. But that is a stationary or legal surplus, and cannot be touched 
for dividend purposes. 

Bg Mr. W. F. Maclean: 
Q_. If a bank is headed in the wrong direction, would two of your inspections 
under this system--A. Develop it? 
Q. Would they expose it, or protect the public in connection with it? 
Would two inspections pretty well ascertain that fact, that it was heading the 
wrong way in view of the bank examiner?--A. Well, there might be conditions 
which within a year might not definitely determine that a bank was headed in 
the wrong direction. The general trend might be upward. At the same time, 
there might be a temporary back-set, and it would be hardly fair to say that 
the bank was on the down-grade. There might be a temporary depression of 
some kind which might affect the bank. 
Q. But the average, you would actually catch it?--A. Well, of course, if it 
would demonstrate the fact that it was on hc down-grade within the year, yes. 
It might have four examinations in that time or more if the decline were marked. 

By Hon. Mr. Crerar: 
Q. How many National Banks are there?--A. 8,300. 
Q. How many failures have you had in the last three years?--A. Last year 
was a record year. There were 79 National Banks closed last year. 
Q. Out of 8,0007--A. 8,300. 
Q. Were these banks subject to the inspection you have just told us about? 
--A. Yes, they were. 
Q. How do you account for the failures? What is the reason?--A. Very 
largely those failures were confined to the :North West. 
Q. In the agricultural area?---A. In the agricultural districts and .down 
through the Central States to New Mexico and the cattle country. The decline 
of prices was so great, and land values and the value of every commodity shrunk 
to the point that the paper became valueless. Of course, there were instances 
of certain large defalcations. 
[Mr. 3ohn W. Pole.] 

14-15 GEORGE V, A. 1924 
every other member bank by reason of that information being in possession of 
the head National Reserve Bank in that region? A. You are speaking of 
Federal Reserve BantUs t'hemselves? 
Q. No, the member banks. Each member bank 'has to give a statement 
to the Central Reserve? A. Yes. 
Q. Is not that information available to every member bank?--A. Oh no, 
ot at all. 
Q. One bank could check all he otter banks?---A. Not in any sense. 
The CHAmMAN: May I suggest that we carry on with the witness's state- 
ment on the bank .inspection. 
I-Ion. Mr. STEVENS: I was (he one to suggest that procedure, but I would ask one or two questions. 
The CHAmMh: I would like to give you all an opportunity, but I think 
we will make more headway, and the evidence will be more inlligible, if 
the witness is allowed to go on. I think hon. gentlemen will be in a better 
position to put questions they have in mind if they would follow that rule. 
I-Ion. Mr. STEVENS: Try to make the application of that rule general, 
Mr. Chairman. 
The CHUmMed: I shall do ny best. 
Mr. Hu.s: With all du.  re.-,peet, I think that occasional short questions 
bring out the point better. 
The CHAmM.,': I will ask the witness to carry on with 'his statement as 
to bank inspection. 
WTNESS: In regard to the question of infornmtion in concction with the 
management and supervision by directors, we come to the question of whether 
or not loans and discounts to the firms and corporations in which directors 
are interested, are specially acted upon by the Board, and as to whether by- 
laws are declared and the,Jr provisions observed; as to whether important letters 
from the Comptroller to the bank are filed in the minutes. Th,at is in reference 
to letters and correspondence which may be conducted in following the exam- 
ination of the bank and on which the directors are expected to be advised and 
Then we come to the section with regard to affiliations "State whether there 
is any affiliation with any State Bank, savings bank or tst company through a 
controlling ownership of stock by the same shareholders, by practically the same 
management, or in any other manner, giving the name of affiliated bank." " If 
transfer of certificate of stock of the National Bank transfer ownership of stock 
of the affiliated bank, state that fact.." "State whether stock of affiliated bank 
owned by shareholders of National Bank is held by them individually or as a 
corporation." " State whether stock of affiliated bank is trusteed for benefit of 
shareholders of National Bank." " State whether any director or other officer 
of this bank is an officer of any other bank", and so on. 
Then comes the recapitulation as to the " slow" " doubtful ", " losses", 
estimated value of assets not shown on the books, and under these various 
headings "Bad debts, other overdue papers, all other loans and discounts, over- 
drafts, premium on United States bond, bonds, securities," etc., banking house, 
furniture and fixtures, other real estate, cash items, shortages, judgments, unpaid 
bills, etc., as to whether estimated losses were charged off at the conclusion of 
the examination. After that examination has been completed, the examiner in 
case the bank is in an unsatisfactory condition, and has losses of consequence, is 
expected to call the Board together and discuss these various problems with the 
Board with a view to getting correction, and it is expected that the Board will 
pass a resolut.ion at that meeting charging off the losses which the examiner 
[blr. John W. Pole.] 

has est.inmted. He then lists his criticisms, if any, with regard to the bank, as 
to the bank's assets, or the management, or anything else. 
That constitutes the form of examination which is returned to the bank. 
The bank has a copy of that examination, but there also goes to the Federal 
Reserve Bank, and comes to the Comptroller's office what is known as "a 
supplemental report of examination" which is all confidential. It does not go 
to the bank. In fact, the bank does not know there is any confidential section 
in the report on the examination. This covers some rather important things 
which I think will be of interest to you, with regard to the salaries of officers 
and employees, the position of various officers and the directors and their yearly 
salaries to all employees, so it gives you the entire salary list of the bank; the 
estimated worth of each director; as to whether or not their financial statements 
are on file, as it is expected they will be; as to whether or not the bank holds 
any large state, county, municipal or insular possession balances, subject 
to cheque, and the rates of interest paid on them. 
Then, of course at regular intervals three times during the year the Comp- 
troller calls for a complete report of the bnk's conditions, which is a rather 
voluminous report. That report is filed in Washington and is sworn to by the 
officers of the bank, and is chcckcd by the examiner when he returns to the bank. 
By Mr. H,ghes: 
Q. That report is made by the officers of the bank?---A. That report is mado 
by the officers of the bank. 
By Mr. McMaster: 
Q. How often did you say, sir?---A. Three times a year, or more often. 
By Mr. lVoodsworth: 
Q. Before the report is completed, is there any consultation between the 
inspector and the officers?--A. Before this report? Oh, yes. At the conclusion 
of the examination he will call in the active officers of the bank, or the directors, 
if it is a matter of consequence. Of course, if it is a matter which can be 
corrected by the officers, well and good because if a bank is in satisfactory shape 
there is no need of calling in the directors, but if there is anything that is not 
running nicely the directors are expected to hold their meeting with the examiner 
for the purpose of discussing these various bhings. 
By Mr. H,ghes: 
Q. Did I understand you to say that a copy of the report made by the 
examiner is given to the bank?--A. Yes, sir. 
Q. Nothing confidential? A. No. 
By Mr. Woodsworth: 
Q. In the case of a bank failure would the report of the inspectors afford 
any indication to the depositors of a growing weakness? A. No, the depositors 
would have no access to that. 
By Mr. Coote: 
Q. Would the shareholders have access to that? A. The shareholders 
might have. 
Q. But only if they asked for it?--A. Only if they asked for it. The 
directors, of course, would be expected to be informed on the contents of the 
By Mr. Marler: 
Q. Where are these reports published? A. Where are they published? 
[Mr. John W. Pole3 

Q. I also have Dun's report for the first four months of this year, and 
please understand I am not offering this in criticism of anything you have said? 
--A. I appreciate that. 
Q. I simply want to bring out he facts, because they are very important 
to us. Dun's report for the first four months of this year show sixty-four 
National Banks failing with a liability of $40,600,000. Is that correct?---A. I 
would say that is about correct. 
Q. And t, hree hundrcd and cleven State banks? 
Mr. SrENCEa: Out of how many? 
The WTNESS: Twenty-two thousand. 
Hon. Mr. STEVENS: I have it here. There are eight thousand National 
Banks, and a large number of State Banks. 
The WTNESS: Twenty-one thousand nine hundred last year. 
Mr. SHw: Mr. Stevens, nmy I interrupt you to ask if you have figures 
indicating the assets of these National Banks? 
Hon. Mr. STEVENS: NO, it is not indicated in Dun's report. 
By Mr. Shaw: 
Q. Have you those, Mr. Pole?--A. The charactcr of the assets? 
Q. No, the total value? A. Yes. 
Q. Perhaps you could leave that with us?--A. Yes, I would be glad to. 
By Mr. Maclean: 
Q. And the total capitalization of the State Banks?--A. I think Mr. Stevens 
said $36,000,000. 
Hon. Mr. STEVENS: $36,568,000 in the :National Banks and $167,170,000 for 
the State Banks. 
Mr. SHW: Those arc liabilities, not assets. 
I-Ion. Mr. STEVENS: Liabilities. 
Mr. Sw: We want the assets of these banks. 
Hon. Mr. STEVENS: This is Dun's report. I do not know whether Dun 
would give the liabilities over assets. Anyway, these banks failed; they are 
insolvent, and we may reasonably assume they would indicate pretty much their 
liability to the public. 
The WTNESS: When you say "their assets " you mean their assets of value? 
Mr. SHW: Yes. 
The WTN.SS: That would be pretty difficult to determine until the receiver- 
ships would be wound up. 
Mr. SHW: I thought you might have an estimate of that. 
The WwNESS: It is practically impossible to make an estimate of that. We 
have no estimate of that. 
By Hon. Mr. Stevens: 
Q. When you are filing your statement which you so kindly indicated you 
would do, would you mind filing the number of National Banks that have failed, 
say, during the past six years?--A. I would be glad to. 
Q. And their liabilities and assets, as suggested? A. I would be glad to. 
Q. In connection with thc examination of the banks under the :National Bank 
Inspection System, am I correct in suggesting or saying that it is quite impossible 
to prevent failure? A. You are correct in making that statement. 
Q. You are speaking of course from a wide experience, as we know?-- 
A. Yes. 
[r. $ohn W. Pole.] 

14-15 GEORGE V, A. 1924 
Q. And. you agree with that statement?--A. I do. 
Q. I know now that I am on controversial ground as far as this Committee 
is concerned, but what I am really after is to get the truth and not necessarily 
to bolster up any particular theory, although some may think I am after theories 
rather than the truth-- 
Mr. MehIAST[R: Even with appearances to the contrary? 
Hon. Mr. STEVENS: I want to get the truth. Do you think it would be 
possible to improve, for instance, the American examination system so as to 
prevent failures and losses? 
WwNrSS: I don't think it would. 
Mr. MnCLt.: But perhaps to minimize it. 
Bg Hon. Mr. Stcvcns: 
'Q. Now, another question along that line. You make an inspection twice a 
year, or perhaps three or four times a year if a bank is not in an entirely satis- 
factory shape?--A. Yes. 
Q. Well now, when you make, we will say, the first inspection and you notice 
something is weakening in the bank's operations, at what point does the Comp- 
troller of the Currency step in and declare the bank insolvent? What guides him 
in that? A. When does he step in to declare the bank insolvent? 
Q. Yes; take it over, under the law? A. Of course, it is a far cry from a 
bank which is in an unsatisfactory condition to a bank which is insolvent; and if 
durin the examination there develops perhaps a great deal of slow paper, the 
summary of this report will indicate that a large proportion of that bank's 
assets are of a slow character, and you would analyze it precisely as you would 
analyze a commercial statement, as to the proportion of slow paper which this 
bank has in ratio to its current liabilities, and that would instantly present itself 
to you perhaps as being a condition which would warrant the more urgent 
attention of the Board, and the Comptroller would take that up at that point 
and try to nrevent the bank from slipping down and endeavour to instil some 
constructive ideas into the situation, with the end in view that the bank might 
strengthen itself and further support by collateral such paper which has been 
listed as " slow", or get that paper out of t.he bank while there was yet time. 
That is the first operation. 
Q. Quite so, but the next examination, and the succeeding examination might 
show a progressive decline?--A. Yes. 
Q. And it might be a year or a year and half before the Comptroller found 
it necessary to step in?--A. Yes. 
Q. Would that be a fair history of the ordinary failure?---A. I think it 
might be. 
Q. In the meantime the Comptroller does his best through the officers and 
he institution itself to bring back into a healthy condition? A. Yes. Of 
course, while these failures are due in a large measure to prevailing economic 
conditions, at the same time a very large percentage of them are due perhaps 
to very poor bank management, and you cannot legislate to prevent that. 
Q. No, but to a large degree the judgment of the Comptroller and his 
chief examiners must be the determining factor as to when a bank should 
actually be clo,ed?---A. As to whether the bank should be closed? 
Q. Yes? A. Oh yes. 
Q. It. is a question which rests with the personal decision and estimation 
of the Comptroller?---A. That is in con]unction with the members of the Board 
who may be working with the examiner. I mean to say there is usually n 
arbitrary position taken by the Comptroller. 
[Mr. $ohn W. lole.] 

By Mr. Hughes: 
Q. With the Board?--A. The Board of Directors of the Bank. I mean 
to say that one of our examiners will step into a bank and find it has a large 
amount of slow and doubtful paper, and he will estimate the number of losses. 
It will be from his analysis of it perfectly obvious to those directors of the 
bank who are working with him that his statement is a fair representation of 
the facts with regard to it, and then these matters are taken up with the ful 
Board, invariably when a bank gets into such a position as that. So it is 
the combined opinion, not only of the examiner, but the right-thinking mem- 
bers of the Board themselves who arc willing to place a fair estimate on these 
assets, which leads the examiner to his determination. 
By Hon. Mr. Stevens: 
Q. Just on that point: you have in that report a clause, or a heading, 
under which examiners offer their criticisms?--A. Yes. 
Q. In your experience as a chief examiner do you find it is a common or 
uncommon occurrence for examiners in their written reports to nake adverse 
criticism?--A. Common. 
Q. Quite common?--A. Very, very common. In fact, if things are run- 
ning along smoothly it has not been the custom to pay any 'attention to it at 
all, because the ground is taken that it is no more than a bank's duty to con- 
duct its business properly, and there are no compliments paid to the bank at all. 
Q. But adverse criticisms are quite common?--A. Yes. 
By Mr. Maclean: 
Q. Even of savings banks, as a matter of fact?--A. Yes. 
By Hon. Mr. Stevens: 
Q. There is another question I would like to ask you while we are on that. 
You know our system, I suppose, fairlv well. Do you think that the system 
of bank examination now in effect wit] regard to the National Banks of the 
United States is applicable to the Canadian banking system?--A. I should 
hesitate to answer that question because I am not really very familiar with 
your system, but in a general way, I would say it is inapplicable. 
Q. I will preface my next question with the statement .that we have a 
dual audit system here; that is, each bank under the new law which was passed 
last year ,has two auditors, each distinct from the other--separate firms. They 
make a report to the directors and general managers and so on. Would you 
consider that that audit by the auditors of Canadian banks approximated the 
examination made by the lk'ational Bank examiners in the United States?-- 
A. Not at all, sir. 
Q. Would you mind indicating what, in your opinion, would be the dif- 
ference?--A. Because I take it that the audits which you refer to are the 
audits of accounts, and that sort of thing, and it is more a checking up of 
figures than an appraisal of assets. Am I correct in that? 
Q. Scarcely. I think perhaps the question would be unfair unless I gave 
you the full details df the law under which our auditors act, which of course 
would be impossible iust now. If you would not mind this afternoon or some 
time before you leave running over our auditors' duties and then answering 
the question I think it would be of great value to this Committee. 
The CHumMed: I would suggest if Mr. Edwards is here that he have a 
conference with the witness to go into this matter, and the witness will then 
be in a better position to make a comparison, perhaps to-morrow. 
The WITNFSS: I should like to do that. Is Mr. Edwards your Banking 
[Mr. John W. 1)ole.1 

By Mr. IV. F. Maclean: 
Q. Is there no mark on those notes in the United States?--A. The form is 
prescribed by the Government. The Government has its own name on the 
notes, and they are furnished by he Government at the expense of the bank. 
Q. And the Federal Government knows exactly the amount of that issue?-- 
A. Oh yes. 
By Mr. McMaster: 
Q. The issue cannot be greater than the capital of the bank?---A. Yes. 
Q. And it must be secured dollar for dollar by Government bonds? A. 
Government bonds, which bonds may bear the circulation privilege. For instance, 
two per cent Consuls, or Government Fours are the only bonds which have the 
circulation privilege. All other Government bonds do not have it. For instance, 
the Liberty issues do not bear the circulation privilege. 
By Mr. Shaw: 
Q. What do you mean by the circulation privilege?---A. You are not per- 
mitted to deposi, t those bonds and issue circulation against them. 
By Mr. Ladner: 
Q. What was the proportion in the larger banks between the capital of 
the banks and the liabilities to the public? At about what percentage did 
they run?--A. I would say an average of about ten for one. In fact, it is a 
sort of regulation of the Comptroller's office, if a bank's liability, if it's deposit 
liability becomes greater than ten times its capital, we advise t'he bank to con- 
siter increasing its capital. 
Q. I suppose you know hat under our systcm the banks give returns 
monthly in regard to their liabilities to the public? A. Yes. 
Q. They include practically all liability outside capital. Would the ten 
to one you refer to include that class of liability?---A. To, I would not say 
so; hat is, it is g deposit liability of ten to one. 
Q. That is all classes of deposits? A. All classes of deposits, yes. It 
would not include liabi.ities for borowed money or anyt'hing of that kind. Of 
course, that is not a fixed anaount at all, that is merely the ratio which an 
efforb is made to maintain, that ten for one ratio. 
Q. Would that be a sort of understood rule for all banks?--A. I am speak- 
ing of National Banks. 
By Mr. Hughes: 
Q. In answer to Mr. Stevens you stated that you would be opposed to 
the principle of banks guaranteeing each other's deposits, tha,t t had worked 
out badly in the United States? A. Yes. 
Q. And for that reason, and perhaps for obher reasons, you thought the 
principle was unsound?--A. Yes. 
Q. It was entirely limited in the United States to State banks?--A. Yes, 
Q. It was never tried in the Nat,ional banks in the country?--A. No, al- 
though it has been advocated by various comptrollers. 
Q. With respect to the Stae banks in the United States in which the 
system ws tried, could you give the Committe any idea, approximaely, of 
the capital of those banks, say the lowest nd the highest, or something of 
that kind; to give us an aproximate idea of the capital of the banks that 
adopted hat system and found it unworkable? A. Yes, I can; I can say from 
a minimum capital of $10,000 to banks with a capital of $500,000. 
[Mr. John W. Pole.] 

14-15 GEORGE V, A. 1924 
dance with some other principle of insurance the premium of which 
will be paid by the depositors or the chartered banks of Canada, or both, 
or in such other manner as the committee may consider capable of giving 
reasonable probection, to depositors of money in savings accounts in 
such sums as the committee may determine." 
You will notice there is an important difference in the principle in this suggestion 
from the general guarantee? A. Yes, I see. 
Q. In other words, the idea is to leave the existing banking institutions 
as they are and simply establish for those who may have some concern about 
the safety of the bank, and whose main incentive is protection, an additional 
class of accounts to those which now exist?--A. Yes. 
Q. And that azeount instead of drawing the present rate of 3 per cent, would 
draw less than that; it might be 2.7, or 2.8, or 2.5, but, the difference between, 
we will say, 2.7 and the 3 per cent, or whatever figure would be fixed upon an 
actuarial basis would constitute an insurance to the depositors by building up 
an Insurance Fund to which the banks might also eontribut:e an equal portion. 
That Fund would be, to the extent of its resources, the protection of its depositors 
who were gready concerned with the safety of their deposits. Business men 
engaged in large and important businesses, who know the solvency of banks, 
would no doubt continue under the old system. Is there any such scheme as 
that in operation in the United States? A. Well, I know there are systems 
which might protect the depositors up to that extent., but the scheme does not 
contemplate that it might only reach to that anaount. 
Q. It is limited to $3,000.--A. I see. 
Q. If you have more than $3.000, you are not protected for the excess? A. 
I see. 
Q. And you must put it into this special class of account, showing that you 
have a motive for putting it in there for protection, thus giving the public that 
amount of protection. Can you relai:e that to any experience in the United 
States where a eoinparison would be useful in drawing a conclusion? A. Of 
course, it might be said that in a very large number of country banks th 
probability is that the average deposit is very far below $3,000-- 
Q. But you know 
The CHmMN: You do not give the witness time to answer. 
Mr. LDNEa: But I know what he has in mind. 
Mr. SHw: But. we don't. 
The Casr: We would like to know what the witness has in mind, and 
I notice that three or four times you have commenced to put other questions 
before he has completed his answer. 
Mr. LDNEa: I did it. with the idea of shortening the time. 
Q. What were you going to say?A. I was saying that in a very large 
number of country banks the average deposit would not be over $3,000, so that 
it would be tantalnount to guaranteeing the whole line of deposits in thai 
country bank. 
Q. you in mind the country banks of the United States or of Canada? 
A. Of the United States. 
Mr. LADXEa: That is why I interrupted, I thought he was speaking of that. 
We could have saved all this time. 
The WIWNss: I am not posted to any great extent on the Canadian banks. 
By Mr. Ladner: 
Q. We are trying, as for as possible, to apply this to the situation in Canada 
where we have fourteen main banks, and under the Branch Bank System we 
have four thousand, four hundred and forty-four branches, or did have a few 
[Mr. John W. Pole.] 

14-15 GEORGE V, A. 192,.I. 
Q. And the Insurance Fund is still there?---A. There is an Insurance Fund 
there, ye. 
Q. Is it not merely a question of the amount of insurance you have to 
elaim.--based upon experience--the amount of the premium you have to claim? 
---A. Yes, it necessarily would be. 
Q. And that is an insurance of all deposits, is it not? A. Of all deposits. 
Q. Is it not much more probable that where you insure deposits of $3:000 
and under for those people only who select it--not for the people who leave 
their accounts Ihe way they are--that such a proposal as this would have a 
muH greater chance of success than the group you referred to?--A. I can 
understand that that might be true, excepting that in the group I referred to 
the Insurance Fund which is built uI would be entirely inadequate to take care 
of any material number of banks, should anything happen to them, so the mere 
fact that the banks are still going, we will say, might be taken as evidence that 
they will continue to go, but if they should meet with misfortune--any number 
of these banks--it is very patent that the Insurance Fund would be a mere 
bagatelle as compared with the amounts so guaranteed. 
Q. There are people who believe that it would be in the public interest to 
have a very small number--say four or five--of the large banks with branch 
systems as against another system of more banks even though they be smaller 
in capital and in deposit? Does your experience give you any conclusion on 
that question?--A. I must s,y that I did not get that question clearly. 
Q. Would it be better, for example, in Canada or the United States that 
there should be four or five very large banks which would control the entire 
business of the country and others would not, through various reasons, be able 
to or find it possible to start up. Would that system be a better one for the 
country or would it be better to have a large number of banks?--A. Well, of 
course, you are bringing up the very broad question of branch bankin there, 
as to whether a system of branch banking is preferable to a system of individual 
Q. No, 4 or 5 large banks would have the system, too. The number of 
branches would not be lessened, nor the service to be public?--A. In a country 
which is operating under a branch banking system. I should say that the possi- 
bility is that the strong towering institutions might perhaps be preferable to 
some of those which were not so strong, but of which there were more. I do not 
know, that is a matter upon which I cannot express an opinion. 
Q. We have in Canada fourteen banks; in fact they are all large, compara- 
tively speaking, to what they have in the United States?---A. Yes. 
Q. But four are very much larger than the others. The question is whether 
in your judgment, in view of your banking operations and serving the public 
interest, whether in your judgment it would be better for Canada to have four 
or five of those main banks with all the branches, or whether it would be better 
to have the fourteen?A. I would not care to express an opinion on that, Mr. 
By Mr. IV. F. Maclean: 
Q. With your permission, and the permission of the Committee, I would 
like to follow up something Mr. Ladner said. I want to ask the witness whether 
it is a fact that the public of the United States to-day, who want to secure their 
deposits can go to the United States Government and deposit their money in the 
Government Savings Bank?--A. Yes, they can. 
Q. And it is absolutely secure?--A. As secure as the Government. 
Q. And the United States is the greatest financial power in the world to-day. 
There is also another thing which I would like to have explained in two or three 
words: we may get more of it to-morrow, and that is that American citizens 
[Mr. John W. Pol=.l 

14-15 GEORGE V, A. 1924 
with this Committee a copy of the Comptroller's Annual ]Report with reference 
of branch banks, which I think will be of interest. 
]Ir. M.tRLER: Mr. Chairman, I would like to ask the witness some ques- 
tions when you are quite ready. 
_Air. HUGHES: There are some questions I would like to ask on some points 
the newspaper reporters did not get quite clearly. 
By the Chairman: 
Q. What is the date of that report of the Comptroller?---A. This report is 
of December 3rd, 1923. 
Document filed and marked EXHIBIT No. 5 (Not printed). 
The WzwNss: It is of particular interest, because this question of branch 
banking involves the existence of the Federal Reserve System, and I am quite 
sure that would be of interest in the report. 
By 1]It. Ladner: 
Q. In what way?--A. For the reason that so far as the State Banks are con- 
cerned it is a voluntary membership, but in the case of National Banks it is a 
forced membership, and upon the Federal Reserve System depends the member- 
ship of the National Banks, and if the Branch Banking Bill and these other 
provision.q of the McFadden Bill had been passed, the probability is that a 
great many of the National Banks would go out of the system, and go into 
the State system, and inasmuch as there are only 1,600 banks out of 20,000 
which are voluntary members of the system, it is probable that a great many 
of those National banks which would go out of the system would probably not 
become members, and would imperil the system. 
By the Chairman: 
Q. Do I understand you to say that you prefer the Branch Banking System 
to the Federal Reserve System?--A. It is a question of establishing branches of 
National Banks, being allowed to establish branches in competition with State 
banks. At present National Banks are not permitted to establish branches. 
Q. How would they be compelled to go out of the Federal Reserve System if 
they established their branches? A. Because the Federal Reserve System does 
not permit branch banks hereafter. 
By Mr. Coote: 
Q. It does not permit branch banks to belong to the Federal Reserve 
System?---A.Yes, hereafter. Of course, I do not mean branches within the city 
in which the parent organization is located. 
By Mr. Hghes: 
Q. You stated this afternoon that there were 12 examining districts in the 
United States?--A. Yes, Mr. Hughes. 
Q. And you stated there were a number of examiners and assistant examiners 
in the United States?--A. Two hundred and fifty examiners and about the same 
number of assistants. There are about 250 or 260 examiners including the 12 
chief examiners. 
Q. And 250 assistants? A. Two hundred and fifty assistants. 
By Mr. W. F. Maclean: 
Q. And a lot of clerks, as well?--A. Yes. 
Q. They are the experts of the profession so far as banking is concerned?-- 
A. These examiners are selected from men who have been very successful as 
bankers, officers, unior officers in banks, and the assistants are from the clerical 
departments of banks. 
[Mr. John W. Pole.] 

Q. And they are fairly well paid?--A. The Government is not noted for its 
large salaries; he salaries run in the ease of examiners, from about $3,000 to 
$20,000 a year, and in the case of assistants from $1,500 to $3,500. 
By Mr. Htfhes: 
Q. May I ask one more question? Is it customary in the United States for 
the hanks to allow cugtomers overdrafts to any appreciable extent?--A. It is not 
anything like so much so as it was; it was quite prevalent before Mr. Williams' 
administration, but he was very mueh down on overdrafts, and they are now 
very much eurtailed. 
Q. What proportion would they bear?--A. A very small proportion. 
Q. To the commercial paper discounted?--A. Oh, nothing. For instance, on 
this date here, Deeember 31st, 1923, out of 8,184 banks, the loans and discounts 
amounted to in round numbers eleven billion eight hundred million, whereas the 
overdrafts amounted to ten million. 
Q. What date was that?--A. Last year. Last December. 
Bg Mr. Marler: 
Q. Mr. Pole, your examinatipn this morning very largely related to the 
question of inspection of banks or Government authority. The evidence, I think, 
which the Committee desired to bring out was the possibility of applying a 
Govermnent inspection to our banking system hcrc in this country. Now, you 
told us the organization of banking inspectors, and you brought us up to the 
point as to what happened when these inspectors went into a bank. You told 
us, I think, that the inspections were at irregular intervals, which meant that 
these inspectors would go into a bank at any time they wanted to, without previous 
warning. :Now, when these inspectors arrive at a bank, let us take the one you 
mentioned this morning, the National City Bank in New York, what do they 
call for first of all or do they simply say, " Hand over your books, we want to 
examine them "?--A. They do not put it just in that langmge, but that is what 
it means. Of course, when you talk about the National City Bank of New York, 
you are talking about a colossal institution there, which would hardly be a 
guide; it is almost a law unto itself. Where there are a few immense institutions 
like that. in New York, there are 500 institutions of half a million dollars capital, 
you know. When an examiner walks into a bank his arrangements are made 
before going there, to place his assistants in each one of the departments, and 
he takes absolute charge of each one of these departments as soon as he enters, 
and he seals the securities and takes charge of the note portfolio, and he seals 
the cash and takes everything under his charge, and releases it as best he can, 
having in mind the idea of inconveniencing the bank iust as little as possible. 
Q. You are aware, of course, as has been pointed out to you, that we have 
in this country some very large banking institutions with which you are prob- 
ably familiar. For instance, we have the Bank of Montreal, the Bank of 
Commerce, the Royal Bank, and the Bank of Nova Scotia; those are four very 
large banking institutions in this country, all having very numerous branches. 
--A. Yes. 
Q. The point I wanted to try and get at. as a starting point is this: these 
bank examiners in the United States do not call for any particular statement 
which has been prepared for that bank and examine that statement and check 
that statement, or do they make up an entirely new statement for them- 
selves?--A. The statement which they would work to would be the statement 
as of the dose of the business of the day in which they entered the bank. 
That is, they would take that general ledger statement. If they went into a 
bank on Friday afternoon, for instance, at the dose of business that day, after 
their statement had been made up, that would be the statement to which they 
would work. 
1--20 [Mr. John W. Po|* ! 

14-15 GEORGE V, A. 1924 
Q. In other words, they would take a statement prepared by the interior 
officials of the bank as a basis of accountability?--A. Yes, but checked back 
by the examiner as to correctness from the general books, of course. 
Q. Now, in going from that statement, that statement would have the 
usual banking items in it; loans, discounts, real estate, and the hundred and one 
various items you get in any statement of a bank on any day of the year at 
all.--A. Yes. 
Q. They take that statement, the bank examiners, and verify it by the 
books and first of all find that that statement as a statement of fioares is cor- 
rect. Do they go this far? Do they look further into the various loans in any 
particular item and verify if those loans are good or bad insofar as the collateral 
security behind them is bad or good?--A. Yes, that is the principal reason for 
the examination. The other, one would really regard as in the nature of an 
audit of the bank, whereas we bank more particularly upon the examination 
which is the careful examination of each particular loan in that bank, and of 
each particular asset as to its real value, and when that note portfolio is taken 
it is probaly taken up----to give you a concrete illustration, those notes arc 
sent, up to the Directors' room where there is-a force of men who go over those 
notes piece by piece, and they will make up what we call "Line Sheets," which 
is to say they will go through all these notes, and when they come across 
"Jones " he will go down, and when they come across " Smith " he will go 
down, and again when they come across "3ones " he will go down on that sheet 
again, so by the time the entire portfolio has been exhausted the examiner will 
have a complete line of all the important loans in that bank, and on top of that 
these loans will be checked up to the Liability Ledger, so as to be sure the lia- 
bility will agree with the actual loans which he has received. After these loans 
have been lined up in that way, the credit statement will be read. and all credit 
information will be obtained, and that loan will be thereby dubbed as " satis- 
factory " or it may be "slow" or it may be " doubtful " or it may be regarded 
as " loss " or "part-loss," and it is there, it is in that very particular phase in 
which the examination of the Comptroller's Department is of real value. 
Q. In other words, if there is a million dollars worth of loans, any particular 
item composed of one hundred items, each one of these is examined and actually 
placed in this report at its real value?---A. Oh, yes. 
Q. So that million dollars is a real asset?--A. Yes. 
Q. There is nothing fictitious about it. Likewise the commercial loans 
on large assets will each be examined?--A. Yes, that is the intention. 
Q. To see if the real value is behind each commercial loan. Likewise, 
I suppose the loans on securities are examined in precisely the same way?--A 
Q. And the same with the assets held by the bank; the whole statement 
taken together as the real examination of the assets behind that statement?-- 
A. Yes, that is precisely it. 
Mr. MARLin: I think that is very valuable information. 
WlWlESS: We differentiate between what we call the audit and what we 
call the examination. The audit deals more with the correctness of figures. 
whereas the examination deals with the value of the bank's assets. 
Q. You have a verification of the assets and liabilities of t'hat bank, and 
when the State bank examiners get through with it, it is absolutely a veri- 
fication that those securities and liabilities are as shown?--A. As far as the 
ability goes to make that investigation. 
Q. Previous to the revision of the Bank Act in 1913, our banks had what 
you would call in the United States, and what we call here, the usual interior 
audit; that is to say, an audit by officials of the bank. Their chief inspectors and 
:M'. John W. Pole.] 

14-15 GEORGE V, A. 1924. 
and make them close their own bank as a general thing. I think, in fact, it is 
done at the instance of the examiner, but only when in agreement with the 
directors that it is the best thing to do to close the bank. 
Q. So I judge from your remarks, hIr. Pole, that in pursuance of his power, 
the Comptroller of Currency recommends to the directors the closing of the 
bank. and they take that action, fearing, of course, that he will follow up his 
advice?--A. That is correct. Of course, the Comptroller does not want to close 
a bank so long as it is a safe place at all for the deposit of money. Of course, 
he tries to avoid closing a bank; indeed, it is a very, very difficult thing to 
determine as to the solvency of a bank, particularly in those localities where 
those 57 banks have closed, because they are in agricultural sections, and the 
lines of credit to those people are just almost guess-work, in a large measure. 
Of course, you know what those agricultural districts are like. They are exactly 
like the agricultural di:tr]cts in Canada where a depression has been felt by 
the banks, and values have declined, and deposits have declined, and perhaps 
the bank has got down to where it calmot borrow any money; it has perhaps 
borrowed already too much, and it has no other place to go, and it is closed. 
Q. Suppose that as the result of those reports to the Comptroller of Cur- 
rency it is found that the capital of the bank is impaired; what would the 
Comptroller of Currency do under such circumstances?--A. Of course it would 
depend a good deal upon where the banks are situated and what were the con- 
ditions surrounding it, but assuming normal conditions, the Comptroller would 
then issue an impairment notice against that bank. 
Q. What would that mean?--A. I-Ie would inform the directors that it was 
necessary to re-establish the capital of that bank which, according to the report 
of examination, was impaired, we will say, 50 per cent, and the directors would 
then serve a notice on the shareholders that in accordance with the by-laws it 
would be necessary for them to meet within thirty days to arrive at a deter- 
ruination as to whether or not they should pay this assessment or whether they 
should go into voluntary liquidation, the bank having only an impaired capital, 
and not being insolvent. 
Q. The shareholders then would have that alternative?---A. Yes, the alter- 
native of meeting the assessment or voluntarily liquidating the affairs of the 
Q. In other words, I take it, the direction of the Comptroller of the Cur- 
rency to the shareholders is this, " Either repair the impairment or go into 
liquidation "?--A. That is correct. 
Q. Now, supposing that it should appear from the report of the Comp- 
troller of the Currency that dividends have been declared, which dividends 
impair the capital of the bank, xx, hat would the Comptroller do, with the power 
vested in him, under such circumstances?--A. Of course, a dividend may not 
be declared unless first of all ten per cent of the net earnings of the period have 
been passed to the Surplus Fund, and that the bank has deducted all bad debts 
and all losses of any kind, and if this has been done and it still cannot declare 
a lawful dividend, the shareholders may have to reimburse at the instance of 
the receivership, should the bank go into a receivership. 
Q. But I suppose the Comptroller of the Currency would also have the 
right to direct that the shareholders be called upon to pay back the dividend 
already paid?---A. Yes, he may do that. 
Q. In other words, I take it from your excellent statement of this morning 
Mr. Pole, that the Comptroller of the Currency is vested with almost unlimited 
power?--A. Very wide powers. 
By Mr. McMaster: 
Q. A sort of financial god?---A. He is. 
[Mr. John W. Pole.] 

14-15 GEORGE V, A. 1924 
Mr. GARLAND: That. is what I understood. 
The CHAIRMAN: What the number required would be, I do not know, but I 
do not believe there would be any obiection to having 100 copies additional. 
We would have to explain the matter to the authorities of the House, however, 
and I would like to know what the requirements would be, if possible. 
Mr. COOTE: Would the Clerk tell us what number was used last year? 
The CLERK: The Committee started with 800 copies, which was increased to 
Mr. CooTE: I suppose they were all used? 
The CLERK: They were practically all used? 
Mr. SPENCER: I think we should have as many this year. I know I have 
had calls for a good many copies and have been disappointed in not getting 
the number I required. 
The CH.IRaIAN: I will communicate with the Speaker who rules these 
matters, as head of the Commission of Internal Economy, and endeavour to 
obtain for the Committee what hon. members are requesting now. 
Mr. CnevRmR: Suppose you place at the disposal of every member of the 
Committee ten copies. Those who did not want them could leave them for 
the others. 
The CmMN: That might be a good suggestion, but I suppose some 
members of the Committee would not require ten copies, while others might 
require more. tf members of the Committee would advise the Clerk as to 
the number of copies they require we might be able to make a fair distribution. 
I sha!l advise the Committee this afternoon or tomorrow what I have been able 
to obtain after consulting with the Speaker, and I shall endeavor to procure for 
the Committee what is requested. 
Mr. COOTE: There is another matter that I would like to bring to the 
attention of the Committee. We have had three distinct matters referred to 
this Committee. There is first the question of the Home Bank and the changes 
in the Bank Act for the safeguarding of depositors. Next there is the question 
of rural credits which has been referred to this Conmittee by the House of 
Commons. As yet, the Committee have not had time to consider that question 
and have taken no action in regard to it. 
The CHmMN: You mean the Tory report? 
h,lr. COOTE: Yes, Dr. Tory's report. I may say that I met Dr. Tory 
yesterday, and I took occasion to ask him when he would be in Ottawa again 
becmse I thought the Committee might possibly wish to ask Dr. Tory to come 
before it and be examined in regard to his report. Dr. Tory told me that he 
was leaving Ottawa csterday afternoon and his secretary has sent me the 
following memo: 
"I am directed by Doctor Tory, to inform you that he has left 
Ottawa this afternoon to be absent until May 27th. He then expects to 
be here during the rest of next week and probably also on June 2nd, after 
which he will again be out of th city for several days." 
I was going to suggest to the Committee that we call Dr. Tory possibly 
next Wednesday or Thursday, or possibly Wednesday and Thursday. 
The CmAN: I understand that Thursday is a holiday, but we could 
probably arrange to have Dr. Tory some time next week. 
Mr. COOTE: I would like to know if the Committee would be agreeable to 
devote two days of next week to this very important matter. So far as Western 
Canada is concerned, there is no more important question than that of rural 
credits, and I would not like to see it delayed too long. 

The CHAmMAN: I grant that there is much in what the lion. gentleman 
has said, but the first order of business before thc Committee is the question 
of the Home Bank; and if it is agreeable to the Committee, when we are through 
with Mr. Williams, I would not object at all to hearing Doctor Tory if lie is 
available. I do not think it will disturb very nmch the deliberations of the 
Committee if next week we fix a date on which to hear him. 
Hon. Mr. STEVENS: He is to be absent until May 27th. 
The CHAIRMAn: :Next week, I think there will be no difficulty in hearing 
Dr. Tory. I may say that I tried yesterday to obtain for the members of the 
Committee printed copies of Dr. Tory's report. Some mistakes have been 
made in the first printing, and it had to be returned to the printing office. 
We expect that it will be available for distribution to-day or to-morrow, and 
copies will be distributed to the Committee, and the Committee will be in a 
position, after we have heard Mr. Williams, to determine what would be the 
most suitable day next week to hear Dr. Tory. 
Mr. WARD: Will there be any additional copies of Dr. Tory's report 
available other than what has been ordered? I have had numerous requests 
for copies. 
The CHAIIMAN: Dr. Tory's report is a return of the House, and copies 
must be asked for at the distribution office. 100 copies have been allotted to 
the Committee, and I may say that 200 copies will be sent to the Committee 
for use of the members. If hon. members desire additional copies they should 
address themselves to the chief of the distribution office. 
Mr. WARD: I did so, and was unable to get any more copies. 
The CHAIRMAN: Then your only recourse would be to address yourself 
to the Speaker. 
Mr. THURSTON: I may say as a member of the Printing Coinmittee that 
we ordered this report to be printed. 
The CHAIRMAN: The question is mainly as to the number of copies 
Mr. THURSTON: I think 500 copies are distributed to members of the 
Mr. COOTE: I would like to know if we can take it for granted that the 
Committee will arrange to call Dr. Tory next week. 
The CHAIRMAN: Will you make a motion to that effect? 
Mr. COOTE: I will make a motion to that effect. 
Mr. SHAW: I will second it. 
The CHAIRMAN: It would be much simpler if you moved that Dr. Tory 
be requested to appear on a day to be fixed next week. 
Mr. COOTE: I will move that. 
The CHAIRMAN: Wednesday? 
Mr. COOTE: Wednesday, if possible. 
Motion agreed to. 

Mr. J. W. POLE recalled. 
Mr. SHAW: Before proceeding with Mr. Pole's evidence I would like to 
make a suggestion. Would it be possible for the witness to give us a fifteen- 
minute or twenty-minute talk on the Federal Reserve System, outlining, perhaps, 
briefly the defects in the American system of banking prior to that, and then 
[Mr. John W. :Pole.] 

14-15 GEORGE V, A. 1924 
4th. To sue and be sued, complain and defend, in any court of law 
or equity. 
5th. To appoint by its Board of Directors such officers and em- 
ployees as are nob .otherwise provided for in this Act, .to define t'heir 
duties, require bonds of them and fix the penalty thereof, and to dismiss 
at pleasure sch officers or employees. 
6bh. To describe by its Board of Directors, by-laws not incon- 
sistent with law, regula.ting the manner in which its general business 
may be conducted, aad the privileges granted to it by law may be 
exercised a.nd enjoyed. 
7th. To exercise by its Board of Directors or duly authorized officers 
or agents all powers specifically granted by the provisions of this 
Act, and sucl incidental powers as shall be necessary to carry on the 
business of banking within the limitations prescribed by this Act. 
8th. Upon deposit with the Treasurer of t-he United States of any 
bonds of the United States in he manner provided by existing law 
relating to National Banks, to receive from t.he Comptroller of the 
Currency circulating notes in blank, registered and countersigned as 
provided by law, equal in amount to he par value of the bonds so 
deposited, such notes to be issued under the same conditions and 
provisions of law as relate to the issue of circulating notes of National 
Banks secured by bonds of t,he Uni.ted States bearing the circulating 
privilege, except that the issue of such notes shall not be limited to the 
capital stock of such Federal Reserve Bank. But no Federal Reserve 
Bank shall transact any business except such as is incidental and neces- 
sarily preliminary to this organization until it has been authorized by 
the Comptroller of the Currency to c,ommence business under the pro- 
visions of .this Act. 
Every Federal Reserve Bank s,hall be conducted under the super- 
vision and control of the Board of Directors. 
The Board of Directors shall perform the duties usually appertaining 
to the office of directors of banking associations and all such duties as 
are prescribed by law. 
Said Board s'hall ad.inister the affairs of said bank fairly and 
impartially and without discrimination in favour of or against any 
member bank or banks and shall, subiect to the provisions of law and 
the orders of the Federal Reserve Board, extend to each member bank 
such discounts, advancements and accommodations as may be safely and 
reasonably made with due regard for the claims and demands of other 
member banks." 
The Board of Directors consists of nine members, classes A. B, and C.; 
Class A members are chosen by the representatives of the stock-holding banks; 
Class B consisting of three members, are men who shall be actively engaged 
in commerce or agriculture or some industrial pursuit in the district in which 
the bnk is located; Cla.s C directors are three members who are designated 
by the Federal Reserve Board. 
By Mr. Ladner: 
Q. They are all appointed by the President?--A. The Class A directors 
are elected by the s.tock-holding banks---that is, three directors; the next three 
are elected from those who are engaged in commercial or industrial pursuits; 
and the Class C directors are designated by the Board. 
[Mr. ,lohn W. Pole.] 

14-15 GEORGE V, A. 1924 
posal for a National Federal Reserve Bank wa.s up, asking that tile Committee 
do not make a final decision, and I understand that the Committee reported 
last year that this matter was left open because of the limitations in our scope 
last year. I think that. with witnesses coming from the United States, and the 
situation as it is in Canada at the presen time, we should not choke off the 
question of safety to depositors, but rather give it a full investigation. 
(Discussion followed). 
Mr. SHAW: Without suggesting any disrespect to your ruling, Mr. Chair- 
man, but simply for the purpose of getting tile matter before the Committee, 
I would move an appeal from the ruling of the Chairman on this matter. 
The CHAmMaN: Mr. Shaw moves that the ruling of the Chair be not sus- 
Motion declared lost on division; 12 ycas; 14 nays. 
On motion of Mr. Spencer, division recorded. 
Mr. LADNER: I move that the decision of the Chairman on this question of 
taking evidence in connection with a Federal Reserve Bank system be referred 
to tile House, with the request tha the Committee be empowered to consider 
such a question. 
Mr. SHAW: That the scope of the Reference be widened. 
Mr. LADNER: Yes, that the scope be widened. 
The CH.,IRMAN: If Mr. Ladner will put his notion in writing, it will remain 
as a notice of motion for to-morrow. 
Mr. Good: When may this matter be brought up in the House? 
The CHAIRM.N: After our next sitting, or we can immediately take a vote 
with the unanimous consent of the Committee. 
Mr. SHAW: I would suggest that with the unanimous consent of the 
Committee we take the feeling of the Committee now as to whether the House 
should be asked to enlarge the scope of its work so as to include this matter, 
and so it can be brought up this afternoon. 
The CHAIRMAN: If it is the unanimous opinion of the Committee, we will 
take a vote now, but unless it is with the unanimous consent of the Committee 
we will have to abide by the ruling. 
Mr. MCMASTEa: I would suggest that Mr. Ladner amend his motion to 
read that the Chairman be instructed to ask from the House such an enlarge- 
ment of our Reference as will permit us to hear evidence upon the question of 
the establishment of a Federal Reserve Bank. 
Mr. LADNER: The motion should be that the minutes of this meeting be 
reported to the House, and I will make a motion in that form. 
Discussion followed. 
The CqAut: The motion should be that a report of this Committee 
be presented to the House with the view of obtaining an enlargement of the 
order-of-Reference so as to embrace the purpose, organization and operation 
of some type of properly administered Central or Reserve Bank. 
Mr. LADNEI: I will move that, seconded by Mr. Good. 
Discussion followed. 
The CHIaN: Mr. Ladner moves, seconded by Mr. Good, that the 
report of this Committee be presented to the House with the view of obtaining 
an enlargement of the reference so as to embrace the purpose, organization and 
operation of some type of properly administered Central or Reserve Bank. 
Does the Committee wish to have the vote recorded? 
IMr. John W. Pole.] 

14-15 GEORGE V, A. 1924 
certificates which, of course, were of little value so far as the necessities of 
the case demanded?--A. Yes. 
Q. And therefore, a great number of banks were forced to close their 
doors?--A. Yes. 
Q. Causing a tremendous loss to depositors at that time?---A. That is 
Q. So, to put it shortly, the Federal Reserve System mobilizes the reserves, 
m'king them available to an)- section of the country?--A. At any time. 
Q. In the event of a stringency?--A. That is true. 
Mr. 5IcM.STEn: What would happen if the stringency occurred all the 
way around ? 
By Mr. Shw: 
Q. Supposing there was a nation-wide stringency, what would be the 
fact?--A. Under the Federal Reserve System there could be no such thing as 
of money panic, with the present-day re-discounting privileges which are afforded 
by the Federal Reserve System, because there is practically no limit to the 
extent to which they may issue Federal Reserve notes against commercial 
paper or agricultural paper, so that funds for iimnediate needs are available 
through such issuances by any .one of the Federal Reserve Banks. 
By Mr. McMaster: 
Q. Elasticity?---A. Elasticity. 
By Mr. Shaw: 
Q. You spoke about another matter which led me to think, by inference, 
that the former system vas not elastic enough, and the Federal Reserve System 
now furnishes, to a large degree, the necessary elasticity. As I understood you 
yesterday, the National Banks were able to secure notes up to the extent of 
their capital upon depositing security dollar for dollar?--A. That is true. 
Q. But they could not in case of a necessary expansion go beyond that 
linit?---A. No, that was limited to their capital. Of course, beyond that, a 
bank could borrow money. There was no particular advantage to a bank in 
issuing its circulation. 
Q. Will you explain, Mr. Pole, if you please, in 'hat way elasticity in 
fle note issue has been secured by the 15ederal Reserve System?--A. In that a 
bank may take its eligible paper from its portfolio at any time and make its 
offering to the Federal Reserve Bank, and the Federal Reserve Bank in return 
vill immediately issue its Federal Reserve notes--not bank notes, but Federal 
Reserve notes. 
Q. And the necessary elasticity is secured in that way?--A. Yes. The 
Federal Reserve notes, if a bank wishes to do it. are shipped to it directly from 
the Federal Reserve Bank the actual currency. 
Q. These notes are currency? A. Yes. 
By Mr. Hughes: 
Q. What is the difference between Federal Reserve notes and Federal Re- 
serve bank notes?A. The difference between Federal Reserve notes and 
Federal Reserve bank notes is that in the first instance a Federal Reserve note 
is secured by commercial paper which may be acceptable to a Federal Reserve 
agent when offered to him by a Federal Reserve bank the Federal Reserve 
agent being the Government's representative in that bank and against that 
paper the Federal Reserve notes are issued. 
Q Are these circulated from hand to hand? A. Very readily. 
:Mr. ]VIhCLEhN: And the credit of the United States is behind all these notes? 
[Mr. John W. Pole.] 

14-15 GEORGE V, A. 1924 
Bank failures with a total loss of about $37,000,000; then there were a few years 
with smaller losses, and we come to 1920, which was a very prosperous year. In 
1920 there were 10 National Bank failures and 109 State Bank failures, with an 
estimated liability of about $50,000.000. These figures are all in round numbers 
as far as dollars are concerned. In 1921 there were 47 National Bank failures and 
357 State Bank failures with a loss of approximately $170.000,000; then in 1922 
there were 35 National Bank failures, and 242 State Bank failures, with a loss 
of about $73,000,000, and in 1923 there were 77 National Bank failures and 501 
State Bank failures, with a loss of about $200,000.000. To summarize this, since 
1913--that is ten years ago---there have been 222 National Bank failures and 
1,664 State Bank failures. I have not had the time t.o add up the total loss, but 
it runs up very high. Now my point is this, Mr. Pole, if you will permit me, 
in view of these increasing failures and the losses in the United States during 
recent years since the establishment of the Federal Reserve Bank, how can it be 
argued that the Federal Ileserve Bank has in any very naterial sense con- 
tributed to the prevention of failures; I am not saying it is tile cause, but how 
does it contribute materially to the prevention of failures?--A. I do not think 
it can be said that it is a criterion of the merit of a system when you take that 
period immediately after tile war. Of course, there were tremendous profits built 
up in 1920. but since that time tile deflation has been so tremendous, and the 
times have been so abnormal, that we are almost tempted to ask the question, 
"What would have happened if we had not had the Federal Reserve System?" In 
addition to this, may I add that your fiuures state there is a very large propor- 
tion of these failures attributable to the State Banks. Of the 20.000 State Banks 
only 1.600 are members of tile Federal Iteserve Systen. 
Q. However, the facts arc correct-- --A. I will not dispute the facts. 
Q. Ilcally the point I want to make is that there is no system that is in- 
fallible and will prevent failurcs.--A. Absolutely none, as far as I know; it 
has never been devised. 
Q. Let me turn to a comparison of your system and our own. You kindly 
referred to the Federal 1Reserve Act and read, I think, Chapter 137--A. Yes. 
Q. I will not read it again but in that Chapter is designated tile character 
of the discounts in what is known as the Finance Act, which I think you have 
read, and we have tile following securities which may be discounted by a Head 
Office Bank with the Minister, or, as we might say, the Treasury Department, 
Treasury bills, bonds, debentures or stocks of the Dominion of Canada, the 
United Kingdom, any province of Canada anl of any British possession; public 
securities of the Clovernment of the United States, Canadian municipal securi- 
ties, promissory notes and bills of exchange secured by documentary title to 
wheat, oats, rye, barley, corn, buckwheat, flax or other commodity, and promis- 
sory notes and bills of exchange issued or draxm for agricultural, industrial or 
commercial purposes and which have been used or are to be u:ed for such pur- 
poses. Is that not a wider range of discount, under the Canadian laws, than that 
which is adopted and accepted by tile Federal teserve Banking System of the 
United States?--A. I think it is no wider. There is nothing in there that would 
not be eligible for negotiation--I wouhl not say "re-discounted" because Treasury 
bills cannot be re-discounted--but as far as the Treasury bills, bonds, debentures 
or stock of the Dominion of Canada are concerned, any bank in the United 
States may borrow nmney on those bills payable from the Federal teserve Bank 
--on such security. 
Q. You do not include municipal securities in that?---A. No. I see in your 
Act you have included municipal securities. 
Q. Do you accept foreign securities?--A. There is an exception in regard to 
foreign securities; it is not included; there is not a wide difference. 
[Mr. John W. Pole.] 

14-15 GEORGE V, A. 1924 
By Hon. Mr. Stevens: 
Q. Regarding the examination made, you made the statement yesterday, 
which I think was very pertinent, and I think you repeated it this morning to 
the effect that it is very difficult to examine a bank with a number of branches, 
very much more difficult; and if there was a general branch bank system, I think 
the report of the Comptroller of Currency indicated that it would be impossible 
to keep an army of officers large enough to accomplish the work?--A. There is 
no doubt about that. 
Q. Therefore, an examination system in Canada, with its branch bank 
systems and head office system of a type of character similar to the bank ex- 
amination in the United States, would not be applicahle, or would not be 
feasible?--A. I think not. 
Q. In your estimation, would it be so cumbersome as to be unworkable?---A. 
I should say so; it would be very expensive and impracticable. 
Q. You are aware, I think, 5It. Pole. of the system followed in Canada; 
that is, we have an internal audit of the bank; then we hax-c in our banking 
system in Canada inspector.s, corrc.sponding in power to the bank examiner of 
the United States; only he is an cnployee of the head office of the bank in 
Canada. He steps into the brnnch office, and takes full charge, just as you have 
described--takes full charge of that branch, ilnmcdiatelv takes possession of the 
cash and securities, and check them in practically tie same manner as you 
describe the examiner in the United States I)anks (I,')v?--A. Yes. 
Q. In your opinion, is not that internal audit,, plus the examination by an 
inspector, to which I referred, which is irregular in periods; plus the additional 
audit provided under our Act last year, a fairly correspondingly safe system 
to that which you practice in the United States, having in mind the di.fference 
in these systems of banks.--A. Having in mind the difference of the systems, 
and eliminating the thought that a simul,neous examination of the parent bank 
8nd all its branches is regarded as essential to a proper examination of the bank, 
I should say that the system as at present in force goes about as far as it 
could go. 
Q. In Canada?---A. In Canada. I mean to say that it is probably as good 
a system as could be devised except that I think, as I stated yesterday, it might 
go a little further. 
Q. I think we agreed with you in that?--A. Yes. 
Q. Having them in mind the Canadian system and the American system, 
and from your experience as an examiner, would it be advisable or feasible to 
adapt the American bank examination system to the Canadian banking system 
without changing the principle of our banking svstmn to correspond with the 
principle of the banking system of the United Staes?--A. It could not be done. 
Q. It could not be done without that change?---A. It could not be done. 
The Committee adjourned until 11 o'clock, Thursday, hIay 22nd. 

THURSDAY, :May 22, 1924. 
The Select Standing Committee on Banking and Conunerce met at 
o'clock a.m., the Chairman, Mr. Vien, presiding. 
The CHAIRMAN: It is moved by Mr. Hughes 
[Mr. John W. :Pale.] 

By Hon. Mr. Stevens: 
Q. There is one question I asked you yesterday, and we adjourned just 
at the moment, and you made no comment on it other than a direct answer to 
my question. I will read it and ask you if you will be good enough to enlarge 
a little on your answer. I will read he question I asked yesterday, because it 
is the one in nay mind: 
" Q. Having then in mind the Canadian system and the American 
system, and from your experience as an examiner, would it be advisable 
or feasible to adapt the American bank examination system to the 
Canadian banking system without changing the principle of our banking 
system to correspond with the principle of the banking ystem of the 
United States?" 
and your answer was, " It could not be done," and then we adjourned. It 
probably would be a little unfair to place you in the position of allowing that 
answer to stand without comment, and it did not quite complete what I would 
like to have as your opinion on the subiect.--A. I have prepared a little 
memorandum touching on that subject, if I may read it to the Committee, 
and you will pardon mc if it appears that I am a little presumptuous in express- 
ing an opinion, although you have asked me for an opinion. 
After giving thought to the banking systems which are in vogue 
in the United States and Canada, it becomes very obvious that the 
methods of supervision must differ although perhaps not in their essential 
The examinations of the Unit Banks in the United States may be 
so arranged that a large force of examiners and assistants can be kept 
constantly employed, and the banks having branches being compara- 
tively speaking few it is entirely possible to make simultaneous exana- 
ination of the parent bank together with the branches. 
In Canada, to make simultaneous examination of the parent banks 
and their branches would require an unwieldy force and involve an 
expense which would seem to make it prohibitive. The system in 
vogue has every appearance of most nearly meeting the requirements 
of the situation. 
The employment of selected firms of chartered accountants to 
inquire into the affairs of the banks, while perhaps not quite as satis- 
factory as though they were examined by men employed directly by 
the Government whose sole duties were to keep in close touch with the 
banks under their immediate jurisdiction and which would be impracti- 
cable under the existing circumstances; it is unquestionably sufficient 
to meet all the requirements, except that, as far as it has come under 
my observation, there seems to be the necessity for extending the scope 
of the audits as now made to embrace an exhaustive analysis of the 
bank's assets including added schedules such as " large extensions of 
credit to individuals, firms and corporations together with their affilia- 
tions, unwarranted investments in any particular class of securities" 
as well as information in connection with the management. 
It suggests itself to me there should be a co-ordinating officer of 
wide experience in banking affairs with a sufficient force of assistants, 
whose activities should consist entirely in compiling statistics and inter- 
preting the information gathered; that he should have full powers to 
treat with Boards of Directors for the purpose of making adjustments 
and correcting criticisms which an analysis of the report of examination 
[Ir. John W. Pole.] 

14-15 GEORGE V, A. 1924 
might disclose. With such an executive in charge of the examinations 
so conducted, there would without doubt develop opportunities in 
numerous ways whereby his services would be of inestimable value to 
the banks themselves in adjusting differences and co-ordinating the 
banking business of Canada in addition to fully protecting the public 
The Federal Reserve Systen has been of inestimable value to the 
banks of the United States in ways too numerous to mention. Prim- 
arily, with the discounting privileges which it offers to its members, 
it has enabled a large number of banks to carry on through periods of 
depressiofi when it would have been impossible to obtain funds else- 
where, and which must have closed their doors with reluctant heavy 
loss to depositors; and while some members of the system have fallen by 
the wayside in spite of the facilities which the F.R. banks offered, the 
question naturally arises as to how calamitous might have been the 
situation had there been no such agency in existence--and to the world 
this will never be knoum, but to those who have been in close touch 
with conditions since its establishment, the facts are undisputed. 
The Federal Reserve system is admirably adapted to the Unit 
system of banking, but for a very small number of banks with a large 
number of branches to attempt to adjust themselves so as to fit into 
such a schene would appear to be highly impracticable. 
Under the provisions of the Finance Act it seems to be quite 
possible for any bank in Canada whose assets would be of such liquid 
character as to enable it to take advantage of any facilities offered by 
the Reserve system, to avail itself of equal opportunity offered by the 
Finance Act, the operation of which is easy and inexpensive, and, 
judging from the manner in which it has been functioning, quite 
The choice in Canada then would almost appear to be between a 
Federal Reserve System coupled with a Unit system of banks which 
change would involve untold difficulties, and a combination of lhe 
Branch Banking Svsten coupled with the Finance Act, which seemingly 
is meeting every Ianking requiremenl. 
By Air. Maclean: 
Q. Would you change the American system for our system, if you had an 
opportunity ? 
By Mr. Hughes: 
Q. Some of the questions I intended asking were covered by question 
asked by the other members. However, there are one or two I am going to 
ask. Was the inelasticity of the American currency one of the disadvantages 
cured by the establishment of the Reserve System?--A. That was one of the 
very greatest. 
Q. Was it the greatest?---A. I should say that it was. 
Q. Then, I think further, that the :National Banks have the privilege or 
the right to lend on real estate up to 50 per cent of their capitat?--A. And 
surplus, or one-lhird of their time deposits. Up to 50 per cent did you say? 
Q. Up to 50 per cent of their capital and surplus.---A. 25 per gent of their 
capital and surplus, or one-third of their time deposits. 
By Mr. McMaster: 
Q. Whichever is the larger? A. Whichever is the larger. 
[Mr. John W. Pole.] 

By Mr. Hughes: 
Q. Or one-third of their time deposits? A. Yes. 
Q. Then, would you call loans of tht nature .non-liquid, or frozen--perhaos 
non-liquid would be better, or non-active?---A. There is in the country a well- 
established market for high-class real estate loans. 
By Mr. McKay: 
Q. There is a limit of time to five years, is there not?--A. There is a limit 
on improved farm property of five years. 
Q. And on town property to one year?--A. Yes, on town property to one 
By Mr. Hughes: 
Q. The Federal Reserve Banks issue their own notes--re-discount the paper 
brought to them by member banks? These notes, in the main, I suppose, repre- 
sent loans made against liquid or quick assets?---A. That is a requirement. 
Q. If they should re-discount loans that have a long period of time to run 
that xvill represent assets that will not pay for themselves, would there be danger 
of an inflation of currency under such a system?A. There would not be, for the 
reason that such paper as you .peak of is not eligible for re-discount. 
Q. But I thought loan on agricultural lmpcr - --A. A National Bank may 
make such loans, but a Federal Reserve Bank may not discount such loans. 
Q. They may? A. They may not. 
Q. But they also may?--A. They also may not. 
By Mr. McMstcr: 
Q. They must not?---A. Yes, they must not. 
By Mr. Hughes: 
Q. Therefore, in your opinion, there is no danger of an inflation of the 
currency under the Federal Reserve System?--A. Under the discreet manage- 
ment in which the Federal Reserve Banks are operated, I should say that phase 
would be fully protected. 
By Mr. McMaster: 
Q. Coupled with an adequate examination of banks? A. The examination 
of the Federal Reserve Banks as made by the Federal Reserve Board, or by the 
Comptroller of the Currency, so I cannot brag of the examination. 
By Mr. Hughes: 
Q. Under the Federal Reserve System of the United States, and under the 
system which we have in Canada under the Finance Act, do you see any 
essential difference between the two systems?--A. There is a great similarity. 
Q. Mr. Stevens in one of his questions to-day asked you whether you con- 
sidered it advisable or necessary to superimpose a systen similar to the Federal 
Reserve System in the United States upon the system which we have here now, 
and I think your answer was that you did not see any necessity for that, or did 
not think it advisable, or something of that kind; but, inasmuch as the two 
systems are largely identical, would you see any obiection to substituting the 
one for the other? A. I hardly think that the Federal Reserve System could 
be substituted for the Finance Act. 
Q. Why? A. For the reason outlined in my remark that it is entirely 
adequate for a unit system of banking, but it is not adapted to the-- 
Q. Branch system? A. Branch system. 
Q. Why?--A. Becatise it would be too expensive and too cumbersome for 
the number of units which it would have to take care of. There being only 
[1VIr. John W. Pole.] 

yOU like, which was charged not only with the duty of inspection or audit or 
investigation or examination, or whatever you want to call it, independently of 
the bank, but also had charge of the Central Gold Reserve, or the disciplinary 
powers which are now given to the Bankers' Association under the Bankers' 
Association Act, and then were charged with the duty which now vests in the 
Treasury Board, under the War Finance Act, would you think it would be desir- 
able to have some central co-ordinated authority which would co-ordinate all 
these different banking functions under the charge of a responsible commission, 
banking commission or whatever authority you want to call it?--A. I was labour- 
ing under the idea that the Minister of Finance was such an officer. 
Q. You think he co-ordinates all these various activities? A. I presumed 
they were under his Department. 
Q. Are you aware that in the case of a bank in difficulties, he has not any 
more power in the matter than you have, so far as legislation is concerned?-- 
A. I did not know that. 
Q. He has no power to close a bank. Then only closing of a bank which 
comes by law would be like any other insolvent corporation?--A. Yes. 
Q. And any power which he uses nmst be the power of persuasion?---A. Yes. 
Q. I ask you, Mr. Pole, in view of the circumstances I have outlined to-day, 
would it not bc desirable to put in the hands of some central body, bank or 
organization--I care not what you call it--a trained body of competent men, 
experienced in all these banking functions, and in addition to that, perhaps in 
time they would be the body which would issue notes for this country, instead of 
them being issued as they now arc by the banks--not immediately, but perhaps 
in the future ?--A . I think it would be extremely desirable that a banking board 
or bureau should be established, if it has not already been done. 
Q. Charged with those various functions? A. Charged with those various 
functions. It would be highly desirable. 
Q. I want to mention that to you because I think the impression has gone 
abroad in the Committee's minds that there are some here who want to establish 
Federal'Reserve Banks. I am sure that is not possible, but I am interested in 
trying to get some central place where we can fasten responsibility for all these 
activities.--A. I was under the impression that that would come under the duties 
of the Minister of Finance to take care of all these situations. 
Q. He is charged with matters of policy?--A. I presume, as far as his time 
is concerned, that is so. I know that the Comptroller of Currency in the United 
States has not the time to attend to all the banks, but he has assistants to whom 
he delegates certain authorities wih respect to that. 
Q. The point is this, that the Minister of Finance in this country is a member 
of the Cabinet, and he must be in Parliament four or five months out of the year. 
He is charged with matters of policy, but it cannot reasonably be expected, in 
view of our political system, that he will be a financial expert, and it is impossible 
for him to do all of this work.?--A. I understand that. 
Hon. Mr. STEVENS: That applies to every. Minister ofthe Crown in every 
activity of any kind. He is the nominal head and has responsible officials under 
him to do the different kinds of work.---A. The Secretary. of the Treasury in the 
United States is responsible for all the operations of the Treasury Department, 
but he has no time to attend to all the details personally. 
By Mr. Shav: 
Q. He is not responsible to Congress.--A. I should say he is responsible 
to Congress for the operations of his Department. 
Q. I ask you for your criticism of the suggestion which I have lust made. 
---A. I should say that it is a very valuable suggestion. As a matter of fact, 
[Mr. John W. Pole.] 

Q. Then in he event of a member bank, or some other bank, charging too 
high a rate of interest, has the Federal Reserve Bank not the authority, after 
notifying thena, to go into that market and lower the rate so as to force the 
banks to give a reasonable rate of interest?--A. That nfight be done, it is done. 
Q. In fact, the United States Federal Reserve Bank has that authority? 
--A. Yes. 
Q. T.hen 
" (c) To act as a credit agent for banks in international banking in 
order to facilitate trade and commerce between Canada and other parts 
of the world, on much the same principle as the Bank of England." 
Would you mind explaining to the Committee how this is done in the 
United States and Great Britain?--A. I am not familiar with the operations 
in Great Britain, but in America the banks do a wide foreign business of 
course; that is the banks in :New York-- 
Q. The Federal Reserve Bank? 
The CHAmMA: Let him finish his answer. 
B?I Mr. Ladner: 
Q. The Federal Reserve Bank--A. Does not enter into any foreign opera- 
tions directly, except for the discounting of bills through its memher banks. 
Q. In international trade it is highly advantageous that function of the 
Federal lcscrve?---A. It is highly advantageous. It nmkes no distinction 
between a foreign bill which is eligible and endorsed by a member bank, and a 
domestic bill which is equally eligible. 
Q. In that way, in foreign trading, it has an advantage over the system of 
private banking?---A. The probability is that those banks which would discount 
foreign paper of that class would have in its portfolio ample paper which it 
might discount if it chose to do so, because these operations are conducted by 
the very large banks, whose assets, generally speaking, are of a strictly com- 
mercial character. 
Q. Then (d) is with respect to Note Issues and tile operation of tile Finance 
Act, the Gold Security and Dominion notes. I think Mr. Shaw covered that. 
We have had your opinion on that. Then 
" {e) To act as bankers or fiscal agents of the Government." 
That is a function of the United States Federal Reserve Bank?--A. Yes, that is. 
Q. How does that work out as regards Govermnent financing, conpared 
with the old system?---A. I am advised that it is entirely satisfactory, and 
operates at a great saving to tile Government. 
Q. Would you mind, in a fev words, comparing the two systems?--A. The 
old system of sub-treasuries--the notes which were issued to various sections 
of the country, have all been taken over by the Federal Reserve Banks, and 
the sub-treasuries, which operated at considerable cost have been discontinued. 
The large volume of business which has been transacted by the Federal Reserve 
Banks as fiscal agents, is due to the large issue of Government securities in the 
shape of Liberty bonds, and that sort of thing, which, of course, was subse- 
quent to the establishment of that issue; so that the fiduciary activities of the 
Government have been tremendously extended since the establishment of the 
Federal Reserve System. 
Q. I have heard it said, and I would like to have your opinion on this, that 
the appointment of a Board of Federal Reserve caused a sort of political rela- 
tionship to exist during the war by which the rate of interest was kept up 
artificially during the sale of Liberty bonds, in order that the Liberty bonds 
[Mr. John W. Pole.] 

Q. Why not outsie?---A. Because it is a Unit System of banking. Yon 
are getting into the question of branch banks new. It is entirely regarded as a 
monopolistic system, and not adapted to the United States. T'he Unit system 
of banking is in vogue, and it suits the American ideas of local self-government 
far better than the branch banking systen|, although there are advocates of 
the branch bank system in America, plenty of them. 
Mr. MChI.STE: You men that part of America known as the United 
WITNESS: [ beg pardon, yes. 
By Mr. Lader: 
Q. Do you not think that taking the Canadian banks with their branches, 
and taking the banks under the Federal Reserve System in the United States, 
we could work out a sy.-:tem of a central or federal reserve board, to perform 
those functions, and do you not think it would be an advantage to Canada, and 
would not be too expensive?--A. I do not think there can be any question but 
that this board of control under some officer--I thought it was the Minister of 
Finance--might undoubtedly select very nIany clauses of the Federal Reserve 
System in a general way which eouhl be nmdc applicable t) your system of 
banking in Canada. 
Q. And not superimposing upon the Finance Act and the Treasury Board, 
and these things, but co-ordinating with these things?--A. Yes, although I would 
say that the probability is that under such a sy;tem that system which you are 
suggesting would absorb all these functions under which the Finance Act was 
Q. Now then, do you understand the situation of the Receiver General's 
office---A. I do in a general way, yes. 
Q. Could we not take almost the entire machinery which we have now 
operating through the Receiver General's office, and co-ordinate that into a 
system of a Central or Federal Reserve Board with very little additional 
expense?--A. Are you not coming back to precisely the operation of the Finance 
Q. No, I am coming to a question of expense. Can you see. at the'moment, 
any great additional expense to the banks or the country?---A. Well, I visualize 
the operation of the Finance Act, in your suggestion there. 
Q. With further powers? A. With further powers. 
Q. Can you see any great expense that would be involved in such a 
procedure? A. I can see that the expense might be very great, or it might 
be limited to the necessities of the case. 
Q. It could be limited to the necessities? A. I should say that it could 
be limited under such a plan. 
By Mr. Marler: 
Q. Mr. Pole, there are a couple of questions I would like to ask you. You 
spoke about the American units banks being alowed to make loans on real 
estate, and you stated that in the United States there was always a market for 
loans on real estate. What did you mean by that? That these loans could be 
readily sold once they were negotiated by the banks to others? A. Yes, there 
are mortgage companies, and insurance companies, as a general thing, who 
are always glad to get loans which are made on a basis upon which National 
Banks are permitted to make them, which bear a nice rate of interest. It is 
regarded as quite readily negotiable. 
Q. Having regard to our Branch System of banking, would you consider 
it wise for our banks to have such opportunities for investments? Or let me 
put the question in another way. Do not these loans in real estate more or less 
[Mr. John W. Pole.] 

14-15 GEORGE V, A. 1924 
Q. Then would it be advisable, in your opinion, that those in charge of the 
rediscounting process, or the advancing of money under our Finance Act, should 
have some pretty definite knowledge of the bank's condition, the condition of 
the bank making application for a loan, and the management of that bank?-- 
A. I think it would be quite essential. 
Q. That the inspection service and the administration of the Finance Act 
ought to be, in your judgment, coupled very closely?---A. Very closely, I think 
the reports of examination which are made, with a careful analysis of all the 
bank's assets, to.ethcr with comments on its management, and of its affairs in 
general, should be accessible to those gentlemen who had authority over the 
making of these advances to such banks. 
Q. Do you think it highly desirable that the administration of the redis- 
counting process should be in the hands of capable and experienced men? A. 
Q. How far, in your judgment, is the present rather regrettable conditions 
of the American and the Canadian banks due to the inflation which took place 
during the years from 1916 to 1920, and the subsequent deflation? How far has 
that been a factor in the present unfortunate condition?---A. Undoubtedly a 
very large factor. The fact also of injudicious banking enters into it, in that 
it has not been able to see far enough ahead, and these fallen prices have been 
taken advantage of without being able to see the results of this tremendous 
rise in prices. 
Q. Would it therefore conduce or contribute to the stability of our banking 
institutions, generally if those periods of inflation and deflation could be con- 
trolled; if we could get greater stability in the price level?--A. I think that 
would aid greatly any banking system, the stabilizing of credit. 
Q. Would it therefore protect the depositors if the general price level 
could be stabilized. What I mean is, if the stabilizing of the price level would 
contribute to the stability of the bnks generally, would it therefore contribute 
to the safety of deposits and depositors?---A. Tlmt is an economic question which 
it is very difficult to answer, but I should answer in the affirmative. 
Q. Is it a function of the present Federal Reserve Board in the United 
States to so regulate the interest rate or the rediscount rate, that a greater 
stability, of stabilization of the price level may be secured? A. Of interest 
Q. Inflation and deflation--that is what i mean? A. That is a factor 
which is taken into consideration. 
Q. Would it be possible for that particular regulation to take place or be 
carried into effect, if you had not a Central Bank? Take the condition prior 
to the establishment of the Federal Reserve System and Board; was it possible 
then to regulate the interest rate in the direction of stability as it is now? A. 
It was impossible under those conditions. Of course, under the present condi- 
tions, the Federal Reserve Banks make their own rates with the advice of the 
Federal Reserve Board; and the rates in one Federal district may differ from 
those in another, although in practice it is found that the difference is very 
slight, that the prices are pretty well stabilized. 
Q. The Federal Reserve Board more or less represents the public in the 
United States, does it not?--- Does it represent the banks, as distinguished from 
the general public, or the public, as distinguished from the banks?--A. It 
represents the public. 
Q. And therefore the Board is supposed to act to the best of their ability 
in the interests of the public? A. Correct. 
By Hon. Mr. Stevens: 
Q. Appointed by--A. The President. 
[Mr. John W. Pole.] 

14-15 GEORGE V, A. 1924 
City. He was President and Chairman of the Trust Company Section of the 
American Bankers' Association; a member of the executive council of the 
Bankers' Association; and for eight years was First Assistant Secretary of the 
Treasury, and Comptroller of the Currency. About twenty-eight years ago he 
becane president of , railway company in the South. Three years later he 
planned, organized and was President of the Seaboard Line, aggregating 3,000 
miles of railroad. He retired from t.he management in 1904. Three years later, 
when the property got into difficulty following the panic of 1907, he was urgei 
to return and participated in its affairs, aiding in its reorganization and he made 
a success of it to such an extent that the floating-debt creditors were paid in 
full without assessment to the stockholders, and the credit of the company was 
fully restored. He retired from the membership of the Board of Directors a 
few month. before going to Washington in 1913. In 1913, he accepted from 
President Wilson and hlr. hlcAdoo the office of first assistant-secretary of the 
Treasury, and he was designated by the President as acting-secretary of the 
Treasury in the absence of Secretary McAdoo. When first offered to him, he 
declined the office of Comptroller of the Currency, but later on accepted it when 
it was offered a second time, and became an ex-officio member of the Federal 
Reserve Board. 
In 1917, when the railroads were taken over by the Government, he was 
appointed by the Director General McAdoo director of the Division of Finance 
and the Division of Purchases, until 1919, when he resigned. He was in 1918 
a member of the Capital Issues Committee, and as such approved or rejected 
applications for the issuance of new securities. 
I am sure, gentlemen, that I voice your sentiment in expressing to Mr. 
Williams our heartiest welcome, and in thanking him for having taken the 
trouble to come to Ottawa to give us his valuable assistance in the elucidation 
of the problems that we have to study in the present session of Parliament. 
We are very sorry indeed that Mr. Williams has found it impossible to give 
us more than the afternoon, tic is obliged to return by the train leaving Ottawa 
at 5.25 p.m.; and I would therefore suggest that he be allowed to make his 
statement without any interruption whatever. It will, I think, assist him and 
assist the Committee if he is allowed to do so, and if there is any time avail- 
able, I am sure that Mr. Williams will invite questions that may suggest them- 
selves to hon. members. 
l]r. W. F. ]VIACLEAN: Perhaps he might be able to complete his statement 
and give us an hour for questioning. 

to ask me any questions 
you will not in any way 
on any point which I do 
As I understood the 
at lichmond, a few days 

Hon. JoHN SKELTON WILLIAIS called and sworn. 
WNESS: I wish to thank you, Mr. Chairman and gentlemen, for your 
generous introduction and also for the privilege which you have given me of 
making an uninterrupted statement in regard to the matters about which you 
wish me to talk. I wish to say that I will be very glad if any one who cares 
at any point of the statement, would do so, because 
disconcert me by asking for any further information 
not make sufficiently clear to you. 
telegram which I received from you, Mr. Chairman, 
ago, you desire me to give some testimony or evidence 
in regard to the system of bank examinations as they were conducted in the 
United States during the period that I was Comptroller of Currency and ex- 
officio a member of the Federal leserve Board. At the time I went to Wash- 
ingon. I held the position of First Assistant Secretary to the Treasury, and 
as such, had supervision of all the fiscal bureaus of the Govenment, including 
the office of the Comptroller of Currency, and the office of Director of the Mint., 
[Mr. J. Skelton Wiiliams.] 

14-15 GEORGE V, A. 1924 
"That is, in the seven-year period from June, 1913, to June, 1920, 
the resources of the :National Banks increased $11,159,000,000, which is 
more than the total increase which took place in the ehtire fifty years 
from the inauguration of the :National Bank System in 1863 up to 19132' 
I wish to say, Mr. Chairman and gentlemen, that this success which 
attended the administration and supervision of the :National Banks was due 
very largely to the directors of the banks themselves, because they were 
informed and notified that they would be held responsible for the faithful dis- 
charge of their duties, and if they were negligent, or inattentive or remiss, or 
guilty of violations of the law, they wouhl be held responsible for all losses 
resulting to the bank, and in circulars and in communications from the bank 
examiners, and otherwise, this duty was impressed upon the directors in a way 
which they were not likely to forget. As an illustration of that, I will mention 
the case of one large bank which I discovered, as the result of an examination. 
It had been guilty of an infraction of the banking laws, and had made an ultra 
vires investment. I sent for the President of the bank to come to Washington, 
and called his attention to this unlawful investment which had caused a loss of 
$1,000,000 or more to his hank. It had been inade several years previously, 
and he protested that he was nt responsible for it, that he was not the Presi- 
dent of the bank then, and he said, "' The other directors are not responsible 
for this loss," .and he said, '" There were tufty two of them who knew anything 
about that." I said, " Who are they? ", aud he mentioned the name of one of 
them, whose name is fnmiliar to all of you gentlemen, and the other is in 
Europe. The first, man he mentioned is now no longer living. I said, " I can- 
not help that, the law has been disregarded, your directors ought to have known 
about this whether they did or not, and I must ask you to pay back into the 
bank's treasury this loss." There were some ameliorating circumstances; this 
had happened a year or more before, so we finally adjusted the matter by taking 
these conditions which he brought up into consideration, and we told him that 
he might settle the nmtter by paying .$500,000 into the bank's treasury; so his 
directors got together and out of their own pockets paid into the treasury of 
the bank the sum of $500,000, and when I saw him a year or two afterwards, 
before I left Washington--this was not a Washington banker--I said that I 
thought that that investment which his directors had made of $500,000 was 
probably the best investment that they had ever made. It was by lessons of 
that sort that impressions were made upon the banks to try to uphold and 
obey the laws. 
By Mr. McMaster: 
Q. Was there any penalty besides the restitution?---A. :Not in that par- 
ticular bank. Of course, there were a number of cases where bank officers were 
convicted of various violations of the penal statutes, and were sentenced to 
fines and imprisonment in some cases. I think it might be interesting to your 
Committee if I should mention tho case of a bank in :New England which had 
in its employ a man who was mworthy of the lob which he held. :Notwith- 
standing the fact that the executive officers of the bank knew that this par- 
ticular employee or officer was not a man of character, who could be trusted, 
they retained him in the employ of the bank, and presently he made away with 
two or three hundred thousand dollars of the bank's funds in one way or 
another, and we had to bring suit against the President, claiming that he knew 
that the man whom he employed was unworthy of confidence, and was respon- 
sible for the losses resulting from his negligence, or worse. The case was carried 
to the Supreme Court of the United States. Meanwhile, the President of the 
bank died, and when the case was finally decided by the Supreme Court of the 
United States, the estate of the bank president paid over to the creditors of 
[Mr. J'. Skeltoa Williams.] 

14-15 GEORGE V, A. 1924 
National Banks, and I was very glad when I read in the paper this morning 
that he had had an opportunity of giving you the benefit of his knowledge and 
By Mr. IV. F. Maclean: 
Q. A head office examination would give you a pretty fair idea?--A. To 
show you what the examiners do sometimes and how much more examiners see 
than directors hear about, I may mention the fact that we sent one of our 
examiners upon one occasion to a lar_-e bank, and he had not been in there more 
than three or four days before he called the Comptroller's attention to the fact 
that the bank had sustained a loss of $3,000,000, and they did not know anything 
about it. The directors did not know anything about it. yet the examiner found 
it out in three days. 
By Mr. Ladcr : 
Q. Who did know about it?--A. The guilty officer. 
Q. Was he a general manager or an assistant?--A. He was manager of a 
By Mr. Euler: 
Q. It is a fact that the United States Government makes an investigation of 
banks. Does that lead to any liability on their part to make go.-,d possible losses 
by depositors? A. You mean the United States Government? 
Q. Yes? A. None whatever. There is no responsibility upon the Govern- 
ment to nmke good losses; the Gorernment's part is to prevent losses. 
Q. Bnt if losses do occur, the Govermnent is not responsible for making 
them good? A. Certainly not. 
By Hon. Mr. tcvens: 
Q. We are interested particularly in studying the system of the United 
States and comparing it with our own, having in mind the difference of the two 
systems. May I refresh your knowledge of the system we have in Canada?-- 
A. I would be happy to have you do so. 
Q. Under our system the auditors are, of course, appointed by the bank. 
I will not read the whole section but only one or two portions of it, which will 
refresh your knowledge.---A. I read your Bank Act yesterday. 
Q. For instance, as to the manner in which the auditors are chosen, and the 
improvement made in the Bank Act last year, I want to read particularly sub- 
section 10 which appears to me to be really the most important paragraph of 
section 56. 
" 10. It shall be the duty of the auditors to report individually cr 
iointly as to them may seem fit to the genera! manager and to the direct- 
ors in writing any transactions or conditions affecting the well being of 
the bank which are not satisfactory to them. and which in their opinion 
require rectification, and without restricting the generality of this 
requirement they shall report specifically to the general manager and to 
the directors from time to time upon any loans exceeding one per cent 
of the paid-up capital of the bank which in their udgment are inade- 
quately secured, but this provision shall not be constrned to relieve any 
director from the due and proper discharge of the duties of a director. 
The report shall be transmitted or delivered by the auditors to the general 
nmnager at his office and to each director at his last known post office 
address and the said report shall be incorporated in the minutes of the 
directors' neeting first following the receipt of the said report." 
[Mr. J. Skelton Williams.] 

Having that in mind, together with the other facts in connection with the 
audit, does there appear to you to be a fair and reasonable audit of a bank?-- 
A. It is all right so far as it goes. 
Q. Very good. In addition to this you will of course recall that the banks 
in Canada maintain an inspection service; that is, inspectors corresponding 
somewhat in ability and in duties to the examiners of the United States Gov- 
ernment?A. Their own auditors. 
Q. Corresponding so far as their technical knowledge or position is con- 
cerned, but of course, employees of the bank. These inspectors go from branch 
to branch throughout the country, and unexpectedly--invariably unexpectedly-- 
inspect those branches quite thoroughly--I may use the term more familiar to 
you, they examine the banks most thoroughly. Having that in mind, plus the 
shareholders' internal audit and the fact that those reports have to be lnade 
to the directors, do you not think that that is substantially a sound system of 
inspection or examination of banks?---A. I do not think that any system of 
examination which is controlled and directed from inside the bank can be as 
effective, as complete and as thorough as an absolutely disinterested outside 
examination hy a Govermncnt agency.' 
Q. It has been suggested hy myself, and I am going to submit it to your 
iudgment, because of your wide experience, that in this clause where it is pro- 
vided that the auditor shall make his rcport to the directors and general man- 
ager and that a copy of that report shall be submitted to the Minister of 
Finance--and when I use the name of the Minister of Financc--.A You mean 
a copy of the auditor's report? 
Q. Yes, that it shall be submitted to the Minister of Finance. That would 
be an addition to or an extension of our present system. Now, with such an 
extension, and having of course an officer qualified--we always assume that that 
will be the case--would not that meet the possible lack which you indicate you 
now see in our system as compared with your own?--A. I do not think that 
that would be anything like as effective as if you would submit it to some bureau 
or office under your hIinister of Finance who is immediately charged with the 
supervision of banks. 
Q. That is exactly what he would be?--A. And who would have his 
authority to send his own independent man to check up that audit. Perhaps I 
may be allowed to cover a point that I have not covered thus far: That is, the 
National Banks are already being examined by committees of their own directors, 
but it has been found that the examination by conmittees of their own directors 
do not begin to take the place of examinations which are made by the Comp- 
troller's bureau. 
Q. I quite understand. Yhen I use the term " Minister," I use it lust as 
you would use the term " Secretary of the Treasury."A. The Comptroller's 
bureau is a bureau under the Secretary. 
Q. Undoubtedly, any system inaugurated would have to have the machinery 
necessary and would have to have such an officer.7---A. As I understand your 
question, it was as to whether sone auditors selected by the bank itself would 
give as efficient an examination as auditors sent by the Treasury. 
Q. Let me turn to one or two facts, and I do not want you to think that in 
asking these questions I am reflecting on the National Banking System in the 
United States; I am seeking for information? A. I hope you will not feel any 
embarrassment in asking any questions. I will answer any questions you care 
to ask. 
Q. I have a copy of Dun's report of bank failures and it corroborates 
your statement that during the 7-year period that you were Conptroller 
[Mr. J. Skelton Williams.] 

14-15 GEORGE V, A. 1924 
of deflation is enforced as it is possible to enforce it., banks and business houses 
and individnals can be ruined notwithstanding any examination that is possible. 
Q. Well, take our own system in Canada, free from the arbitrary interfer- 
ence. we will say, of such a body as a Federal Reserve Board, the bank would 
not be inclined to deflate to their own ruin? The point which you now make 
would scarcely apply to the Canadian system?--A. Here is what happened when 
pressure was put on by certain authorities in the United States who. instead 
of extending credit, credit was drawn in, and some hanks to save themselves had 
to call upon their customers, and there were many cases where banks did save 
their own skins, but their customers were ruined, and if there has been an 
intelligent handling of the credit situation or proper handling of the credit situ- 
ation, both the banks and their customers eouhl have been saved. 
Q. Now, in your description of the system of examination you mentioned 
that veT often you found it necessary to resuscitate banks, and that some banks 
would get into difficulties, and you succeeded in bringing them back into a 
healthy condition. Now, that condition was not known to the public? A. As 
a rule, not. 
Q. Would you advise--A. Eight there, I do not want you to draw from that" 
answer that we permitted a bank to continue in an insolvent condition. What 
we wonld do, if the bank was in a dangerous condition, would be to call upo 
the officers and directors quietly, without anybody knowing anything about it, 
to put up enough money to svc the bank during the period it was to continue. 
Q. I think I recall you using a figure of speech, that sometimes a bank was 
like a person drowning, even sinking thrce times, and being brought to the 
surface and rcsuscitated. The question I want to base upon that is, would you 
advise making public the facts contained in the reports of the examiners to the 
Comptroller of the Currency, the copy of which we have on file?A. In volume 
II of the Comptroller's report there is published a statement showing the condi- 
tion of every National Bank in the United States, as of the Autumn call, the 
September call. That, of course, does not go into its affairs in the same detail 
as the examiner does in his report. Of course, it would be in many cases fatal 
for the report submitted to the Comptroller of the Currency by the Examiner 
to bc made public, because the depositors would say, "The bank is in a dangerous 
condition, perhaps it may be saved, but we do not know whether it will be 
saved or not, and we will not take any chances, but will draw out our money," 
and there would be a run of the bank. The Comptroller examines the conditions 
to see cxaetly what can be done. If it, is possible, or we believe it is possible to 
save the bank, and if the shareholders or directors cn and will put up enough 
to maintain its solvency, and if so, that is done at once, and nothing is said about 
it, the bank goes on in a clean and safe condition. 
Q. Have you examined the monthly reports which the Canadian banks 
make? A. I have not. 
Q. Then we are clear that it would be inadvisable to make public the facts 
in the report given by the examiner to the Comptroller?--A. Certainly. 
Q. And such a report should be kept in a confidental state, and the authori- 
ties to whom made, in your case, the Comptroller of the Currency--A. Yes, the 
report, of course, is filed in the proper office; if it is a govermental agency, it is 
filed in that office where it can be analyzed, and the necessary action taken to 
save the situation. 
Q. And in the case of Canada adopting an inspection of your audit system 
including, in a sense, the examination, of Canadian banks, such reportsA. 
Should never be published in their entirety. 
Q. Publication of them would seriously interfere with the efficiency of such 
an examination?--A. It might interfere with the redemption and saving of the 
banks. We will suppose a case where the report is submitted by the examiner, 
[Mr. J. Skelton Wflliams.] 


14-15 GEORGE V, A. 1924 

Q. And that individual, in the case of the United States Comptroller of the 
Currency, may be changed at will by the Government in power?---A. Fortu- 
nately, as a rule, we have had able men in charge of that important bureau. 
Q. I am not reflecting upon the individual at all, but that is the fact, in 
regard to that system, is it not?--A. That is not only the fact in the 1N'ational 
Bank System; it applies to all government, from the President down. 
Q. And to the change made in 1921, and the policy adopted, and ti,e 
administration of that office you, partly, at least, ascribe the failures of the 
National Banks--the increased failures?--A. I hope you have not drawn from 
anything I have said any suggestion that in my udgment the large number of 
bank failures was due to any inefSciency on the part of the bank examiners. 
Q. Change of policy?--A. Oh, I do not think that the failures were 
primarily and mainly due to the effect of deflation. 
Q. And the change of policy--I think you used that term, yourself?---A. 
It was a policy of deflation which prevailed after Mr. l\IcAdoo left the Treasury. 
Q. Which is incident to the system? The change in personnel and the 
change of policy is incident to the system?---A. The change of policy is incident 
to any banking system; any banking system may thrive under one policy and 
languish under another. I should say in regard to the individual audit of banks 
--o course you know that m:my National Banks have not only periodical 
examinations, but have their own auditors in our country, as well as here, and 
those auditors make periodical examinations and arc supposed to keep them 
up, and keep them in condition, to bring to the attention of the Board matters 
requiring conuection, but unfortuuately the audits which are made by the banks 
themselves of that condition has been wholly inadecluate. 

By Mr. Ladner: 
Q. Mr. Williams, I want to ask some questions regarding double liability. 
You expressed some views that you would favour that. For what reason, do 
you think double liability should be applied to shareholders which in modern 
imes is (lone so frequently?--A. The record of the Comptroller of the Cur- 
reney's of See. There has been many a bank saved from ruin by this double 
Q. From the point of view of the management of n bank in saving the insti- 
tution, but from the point of view of the shareholder, and outside persons invest- 
ing their capital. How about them?--A. I see your question, as you have asked 
it. hIy point of view is that it is better from he standpoint of the shareholder 
and also from the point of view of the depositors, and I will explain why, from 
the point of view of the stockholder. In the fir.t place, the stockholder of a 
bank, when he realizes if the bank is mismanaged, he may be called upon to 
pay one hundred cents on the dollar on his investment, in addition to going 
without the dividend, is more apt to look carefully after the personnel of the 
management, and see that efiqcient and capable men are kept in charge of the 
bank. From the standpoint of the depositors, the depositors feel they have 
doubled the security, assuming the stock is subscribed to bv men who have rel 
money to invest, and not by men who borrow it, and. there'fore, they are willing 
to make their deposits in the banks with smaller capital, than they might other: 
wise require. 
Q. Why should not the same principle of additional liability be applied 
to other concerns--to Trust Companies?--A. It does apply in some cases to 
Trust Companies, as well as banks. I agree with you. it is a safer method both 
for trust companies, and other kinds of depositories. 
Q. Then you would limit the double liability to where there were deposits? 
--A. Yes. 
[Mr. $. Skelton Williams.] 

actually exists in Canada. In 1923, at 31st December, of the total deposits 
within about one half of one per cent calculations, 70 per cent of those deposits 
were in our four largest banks, and 30 per cent were in the remaining 10 banks; 
and owing to the failure of the Home Bank, I think, and perhaps other causes, 
it is said that there has been a great deal of shifting of deposits from the smaller 
institutions to the larger ones, so that the smaller institutions carrying overhead 
are faced with less deposits. :Now, would such a proposal in your judgment 
stabilize the confidence of those people in the snaller institutions and enable 
them to remain in competition with the largcr ones. ._. I think that can hardly 
be a matter of opinion; it is a matter of fact. 
Q. Do you think that the fact that we have a branch banking system, a 
system of 14 banks with branches, instead of a unit system, would make any 
difference to the practicability of such a proposal?---A. What argument is there 
against it? 
Q  do not think there is any. I an favourable to the scheme, you undcr- 
stand.--A. I see no objection to it. 
Q. In your proposal Mr. Williams, do you propose that the depositors pay 
any portion of the premium for this insurance scheme? ._. No. 
Q. You thin'k that the bank should pay it all?--A. I suggest that that 
premium could be met bv taking a small proportion of the surplus earnings of 
the Federal lcserve Bans. 
Q. Since the establishment of the Federal leserve Bank, we have learned 
that it earned $135,000,000 of profits which went to the Govcrnmcnt?--A. The 
profits have been very large. 
Mr. POLE: $136,000,000. 
Bg Mr. Ladncr: 
Q. In your opinion, would the etablishment of such a system of guarantee 
cause all the depositors to take advantage of it to the extent of $5,000? A. Why 
should they not, if it cots them nothing? It would be automatic. That means 
that if any depositor puts his money in a Canadian bank it is guaranteed up to 
Q. Suppose that instead of recei-ing the full percentage of rate of interest, 
they only received a portion, say 2.8 per cent, and did actually contribute their 
proportion to the prenium; do you not think that that would have the effect of 
causing the large institution and the people who understand the solvency of 
banks to allow their accounts to remain in th( current accounts and current 
savings accounts as they do now and make it les,. difficult to apply the system? 
---A. I do not exactly catch the point of that question. 
Q. If a person could get as high a rate of interest in this new class of savings 
accounts as they can under the present conditions they would naturally take 
advantage of it?---A. They would take the protection of the Government. 
Q. But if the depositors had *, pay a little bit for the poor man who wanted 
protection, he would not mind taking a little bit less?---A. My point is that I 
would take care of the poor man. If I can do it without paying extra I would 
do it. 
Q. The result would be that you would have everybody, poor and all alike, 
people who do understand the solvency of banks and others who do not, all 
taking advantage of this account and perhaps embarrassing the operation of 
the banks?---A. I do not see how it could embarrass the operation of the banks 
if there was a Government guarantee. How would it embarrass the operation 
of the banks? 
[Mr. $. Skelton Williams.] 

The CHAIRMAN: You might allow Mr. Good to put a few questions firs*... 
[r. GOOD: I think in view of the rapid passage of the time, I shall take 
my chance of asking Sir. Williams a few questions after he has made his state- 
ment regarding the Federal Ieserve System. May I, before he begins, how- 
ever, point out what I would like to have him give us in that connection, not a 
detailed statement of the constitution and operation of the system, but a bird's- 
eye view of the situation that the United States faced financially prior to the 
establishment of the system; the weaknesses that existed then; an outline of 
the main features of the system; something as to the remedies cffected by the 
system after it once was put into operation, especially with reference to the 
safety of depositors, h[r. Williams has put before this Committee the relevancy 
of this question of the establishmeDt of a Central Bank to the question of the 
safety of depositors. I wouhl .like him also to deal with the question of the 
establishment of a Federal Reserve or a Central Bank re-discounting and 
reserve in relation to the safety of depositors. I should like Mr. Williams to 
deal with the possibilities that lie in a bank to stabilize the price level and 
prevent these terrible disasters to which he has referred. I think he has stated 
to Mr. Stevens that the disasters which have overtaken the United States banks 
in the last few years have been duc 
The WTNESS: To a large extent. 
Mr. GOOD: --to the ruthless, and too rapid deflationary policies that were 
begun in 1920. hIr. Chairman, if Mr. Williams would give us from his point 
of view a bird's-eye view of the Federal Reserve System, and possibly in con- 
clusion-if he has considered the matter--his views as to the adaptation of the 
principle, under the United States System of a Central Bank of Canadian con- 
ditions, I shall be glad to have his pinion on that. 
The WTESS: I think in my annual report as Comptroller of Currency 
for 1914 (EXHIBIT :No. 9) I gave what might bc regarded as a bird's-eye view 
of the situation, and I shall be glad while reading it to be interrupted at any 
point if anyone wishes to ask a question on any of the points covered. 
The Federal Reserve Act, approved by President Wilson on Decem- 
ber 23, 1913, is designed not only to cure weaknesses and defects of the 
currency system under which we have struggled, and sometimes stag- 
gered, in the past, as we have outgrown the conditions and passed beyond 
the circumstances which it was especially provided to meet, but to offer 
to the people of this country many new advantages and opportunities, 
while emancipating business from manv evils, difficulties, and troubles 
with which it has been burdened and from which it has found no escape. 
Among the principal direct benefits which the new Act confers are 
these :- 
First, it supplies a circulating medium absolutely safe, which will 
command its face value m all parts of the country., and which is suffi- 
ciently elastic to meet readily the periodical demands for additional cur- 
rency, incident to the movement of the crops, also responding promptly 
to increased industrial or commercial activity, while retiring from use 
automatically when the legitimate demands for it have ceased. Under 
the operation of this law such financial and commercial crises, or 
" panics," as this country experienced in 1873, in 1893, and again in 1907, 
with their attendant misfortunes and prostrations, seem to be mathe- 
matically impossible. 
Second. it provides effectually and scientifically for the mobiliza- 
tion of bank reserves in the twelve Federal reserve cistricts, where these 
funds are not only available for the member banks of each respective 
district, but, under wise and well-guarded provisions of the law, the 
[Mr. $. kelton Williama.| 

Under the provisions of the new law the failure of efficiently and 
honestly managed banks is practically impossible and a closer watch can 
be kept on member banks. Opportunities for a more thorough and 
complete examination are furnished for each particular bank. These 
facts should reduce the dangers from dishonest and incompetent manage- 
ment to a mininmm. It is hoped that national bank failures can here- 
after be virtually eliminated. 
Ninth, the establishment of a system of bank acceptances and an 
open market for commercial paper, which, it is believed, will aid and 
facilitate this country in obtaining a larger share of international trade 
and of the world's commerce." 
Those are the 9 points and advantages which are obtained from the institu- 
tion of the Federal Reserve System as they impress me at the time. 
By Mr. McMaster: 
Q. Sir, would you iust tell us how you established these banks? Just 
realize that some of us at least know practically nothing about the matter, and 
disclose to us the system and how it operates, especially to secure depositors?-- 
A. You mean the Federal Reserve System? 
Q. The whole thing?--A. Would you like me to discuss the National Bank- 
ing System as it existed prior to the Federal Reserve System? Prior to the 
Federal Reserve law being passed, our national banking system was based upon 
a war measure passed about 1864 under which a class of banks was provided for 
which could issue currency on the security of Government bonds. The only 
basis upon which they could issue security was Government bonds. A tax was 
imposed at the same time on such banks which prevented State banks from 
issuing any currency, practically. I think it was a tax of 10 per cent or 15 
per cent, was it not, Mr. Pole? 
]r. POE: 10 per cent, I think. 
The WTSS: It was a prohibitive tax on currency, so the only banks 
which issued currencv after the inauguration of the national banking system 
were the national banks. At the close of the war there were about three million 
dollars of bonds outstanding, and it was the basis for the currency which the 
national banks desired to issue at that time. Since the war the public debt had 
been almost paid off, reduced to about one billion dollars, about the year 1912 
or 1913, so the opportunity for issuing currency on Governmeut bonds was 
passing away, and there was no elastic currency, no way of supplementing the 
country's supply of money so as to keep pace with the growth of the country 
and the increase in business, in commercial and industrial enterprises. As a 
matter of fact, a national bank with a million dollars of capital, and entitled to 
issue a million dollars of notes would really not increase the money in cir- 
culation by issuing those notes. They would have to take one million dollars 
of their funds and buy one million dollars of Government bonds; when they 
bought a million dollars of Government bonds, they would only have a million 
dollars of national bank notes which they would have to put out in some way 
or other and besides that they would have to put up a 5 per cent redemption 
fund. So as a matter of fact the actual money in circulation was re*duced instead 
of being increased. That 5 per cent redemption fund was kept there and as 
national bank notes were sent in from one bank to another to be paid off they 
were paid by the Treasurer of the United States, and he would charge them up; 
he would pay them from the national redemption fund and notify the bank that 
the fund had been charged so much and ask them to make it good. As you can 
see, there was nothing elastic about that system, and with the exhaustion of the 
Government bonds the basis on which currency could be issued was constantly 
[Mr. J. Skelton Wflliams.] 

14-15 GEORGE V, A. 1924- 
By Mr. Good: 
Q. As to the possibility of stabilizing the price level to a iustifiable interest 
rate?--A. That is a matter that I think should be given every consideration 
and shouhl be gone into very cautiously. I do not think the lederal Reserve 
Board ought  tmnpcr with pri(.cs too far. I think they should adhere closely 
to the functions of banking. I think it was wrong for the Federal Reserve 
Board. if they did it deliber-atcly, to undertake to bring prices down by calling 
in credits; I think that was an unjustifiable act. 
By Mr. McMaster: 
Q. That was the effect f calling in the credits?--A. If that was their 
purpose, it was not justifiable. The prices at one time were too high, but it 
was obvious to any economi.t or business man that they were not always going 
to remain on that basis. Wouhl it not have been much better for the country 
to have gone slow and permit the individual and the consumer to use up the 
high-co.t stuff as they went along and reduce the cost by degrees, so there 
would not have been he decline that there was? 
By Mr. Good: 
Q. The point I raised is this. Mr. Williams has stated very definitely 
that in his iudgmcnt the miemanagcmcnt of the system led to very serious 
consequences indced.--A. Instead of "mismanagement" I think I would rather 
you would nse the term " ill-advised policy " they followed. The result of it 
was mismanagement, but I should not care to go so far as to say there was any- 
thing deliberate about it. I think they followed the policy of drastic deflation 
entirely too far. 
Q. If the policy was ill-advised or ill-conceived, then I raise the question 
as to the possibility of utilizing this system to carry out a policy which is well- 
advised and well-conceived, conducive to the general welfare in the matter 
of preventing inflation or deflation.--A. That is a very large question and must 
be considered in its broader aspects, as to how far-the banking system must 
undertake to interfere with prices. It is a large question. 
By Mr. McMaster: 
Q. Under the present organization of credit, is not banking bound to inter- 
fere with the price level?--A. I think it would be wrong for the Federal Reserve 
System to reduce discount rates to an absurdly low price, because everybody 
would run in and borrow money and then up would go the prices again. 
By Mr. Good: 
Q. Which would lead to inflation?--A. Which would lead to inflation, and 
I think it would be equally wrong and perhaps a little worse if they bring 
things down to a little less than their real value. 
Q. Without pressing this matter further, I should like to have your views 
as to the applicability of this principle to Canada. I may say that in Canada 
we have had established, I think, a litle over 10 years now, central gold 
reserves where the banks may deposit either gold or Dominion notes and get 
permission to print their own notes in substitution thereof, and we have also-- 
Mr. (ARLAIND: Not in substitution thereof. Is there not some proportion? 
By Mr. Good: 
Q. No, I think it is dollar for dollar. Then in 1914 we have the War 
Finance Act which gives the rediscount privilege to banks. That was a war 
measure and it has been on the Statute Books ever since. 
Mr. SHhw: I think you should point out that this is under the control of 
a Board. 
[Mr. J. Skelton Williams.] 

That would be a great convenience to the public, if they could mark their 
The CHAIRAN: That will remain on the table until the next sitting of the 
Mr. hlchIAsTEI: I move, seconded by hit. McKay,-- 
That a report be presented to the House recommending that the 
minutes of proceedings and evidence taken before tile Select Special 
Committee on Agricultural Conditions of last session, be referred to this 
The reason I move this resolution is that last year we obtained a good deal 
of what I think was valuable information from numerous people concerning 
rural credits, and as that matter comes before us this year, I think it will be 
well to have these proceedings before tile Committee formally so that reference 
may properly be made to the evidence given and the subject matters treated in 
the evidence in the proceedings of this Committee. 
The CHhN: It is moved by Mr. MeMaster, seconded by Mr. MeKay, 
that a report be presented to the House recommending that the minutes of pro- 
eeedings and evidence taken before the Select Special Committee on Agricul- 
tural Conditions of last session, be referred to this Committee. 
Motion agreed to. 
The CIIM: I think the report of the Committee has already been 
distributed with the sessional papers of last year, but I will endeavour to have a 
new copy issued to all the Members of the Committee. 
Hon. Mr. STEVENS: You do not suggest re-printing? 
The CmM.N: 1o; I think there are spare copies enough for the members 
of the Committee. We had decided at the last meeting that the first witness 
this morning would be Mr. Finlayson, on the subject of bank inspection. We 
will hear. him now. 
By the Chairman: 
Q. Mr. Finlayson, you are Superintendent of Insurance? A. Yes, sir. 
Q. Have you a statement to make to the Committee in respect to the intro- 
duction of a government system of inspection of banks? If so, will you make it, 
and then perhaps some of the hon. Members would like to ask you a few ques- 
Mr. MACLEN: IS this statement of his own motion or on behalf of the 
The CN: On behalf of the Department. 
The WITNESS: Mr. Chairman, I have prepared no statement regarding 
bank inspection. I have not studied the bank question at all. I have had no 
experience with banks. Our Department inspects every year some three hundred 
odd Insurance, Trust and Loan Companies, and I had rather assumed that nay 
evidence would be mainly on our experience in connection with these companies 
rather than in connection with banks. We have never inspected banks and have 
never even scrutinized bank returns officially. 
Mr. GOOD: Mr. Chairman, I would suggest that hit. Finlayson give us some 
idea of the usefulness of the inspection which was established, I think, about two 
years ago with regard to Trust and Companies, which are somewhat 
similar to banks. I think if he would give us his experience, or a statement 
which would cover those points, the Committee would be assisted very much. 

14-15 GEORGE V, A. 1924 
The WITNESS: Mr. Chairman, the Act authorizing systematic government 
inspection of Loan and Trust Companies was inaugurated four years ago, in 
1920. Prior to that there had been passed, in 1914, general Acts, the Loan 
Companies Act 1914, and the Trust Company Act, 1914. Those were the first 
general Acts dealing with Loan and Trust Companies of that character incor- 
porated by the Dominion Parliament. Theretofore they had been governed by 
a section in the Companies Act. Dealing particularly with Loan Companies 
there was a provision in the Acts of 1914 somewhat similar to what is nov in the 
Bank Act. Section 69 of the Trust Company Act, of 1914, provided that the 
Company should render annual statements to the Minister of Finance. Then 
Section 70 was as follows: 
" The Treasury Board, upon the report of the Minister, may appoint 
some competent person as inspector to investigate the affairs and manage- 
ment of the company, and shall report thereon to the Minister; and the 
Treasury Board may also prescribe the manner and the extent to which 
the investigation shall be conducted. It shall be the dlltv of all officers 
and servants of the company to produce for the examinat,on of any such 
inspector all books or documents in their custody or control in relation to 
the matters under investigation; any such inspector may examine upon 
oath all officers or servants of the company in relation to its business, and 
may administer the oath accordingly". 
The Section of the Loan Act was exactly similar. It is important to notico 
that this was a pernissive section, " The Treasury Board may appoint" somo 
person. It required first of all a report by the Minister to the Treasury Board, 
and they might then appoint some person to make a special investigation of 
any particular company. Those two Acts Iemained in force for six years but 
the provisions of those sections were never invoked, and if they had remained 
in force for twenty years it is safe to say they never would have been, for the 
reason that they contemplated, first of all, a report on a particular company. 
During these six years it was pretty well known, I think, that there were Loan 
and Trust companies that should be examined, that needed examination; yet, 
for the very reason that the Minister has just mentioned in connection with the 
Banks it was never done. It was felt that the moment the Government appointed 
a man to go into that company, suspicion was cast upon i. If it needed examina- 
tion, then there was danger of a run on the company, and the company was 
probably damaged. If on the other hand it did not need examination, if the 
suspicions were unfounded, then a serious hardship was imposed upon the com- 
pany. In 1920 it was decided that there should be systematic, periodical inspec- 
tion of loan and trust companies, and in that year the two Acts were amended 
to provide that, " the Superintendent shall visit personally, or cause a fully 
qualified member of his staff to visit at least once in each year the Head Office 
of each company required by this Act to make returns to the _//inister". Since 
that time, commencing with 1921, ther has been an annual examination of 
every loan and trnst company. 
By Mr. MacLean: 
Q. How many officers does it take to do that?--A. One man. 
By Mr. McQuarrie: 
Q. Has the result been beneficial?--A. We think so. 
By Mr. MacLean: 
Q. Have you corrected any abuses under it?---A. We think so. 
[Mr. George D. Finlayson.] 

By Mr. Euler: 
Q. How many such companies are there?--A. Fifteen of each. 
By Mr. Spencer: 
Q. With 300 offices?---A. I am speaking now of loan and trust companies. 
There are 30 of them altogether. Then the insurance companies number about 
275 or 280. 
By Mr. Marler: 
Q. How many have you on your inspection staff, Mr. Finlayson?--A. We 
have about 8 or 9 men altogether. 
Q. To examine substantially 300 offices?--A. Right. 
Q. You verify the securities?--A. Yes. 
Q. The mortgages?--A. Yes. 
Q. The value of the mortgages?--A. Yes. 
Q. Whether they are registered or not?---A. Yes. 
Q. And the security behind them?--A. :Not in every case. It is only in 
a very small percentage of cases where we have to investigate values and appraise 
the security, but new mortgages of every insurance, trust, or loan company 
are examined within a year after they have been placed. The documents are 
examined, the abstract of title, the solici.tor's certificate, and the mortgage 
deed itself are examined. 
By Hon. Mr. Stevens: 
Q. That is, you examine the documents showing these things, in the offices 
of the company?--A. The documents in the office of the company, and inquire 
into the security, the land pledged, and if there appears to be reason for it we 
investigate further and have an appraisal of the property. 
By Mr. Marler: 
Q. Do you examine at the Registry Office as to whether these particular 
mortgages are in force or not?---A. That is usually not necessary. In western 
Canada we et a certificate; that shows the registration of the mortgage and 
also proves the title. 
Q. It does not show the cancellation, though; it might have been cancelled 
previously. It might have been a registered deed of a mortgage, but you do 
not examine as to whether that has been cancelled or not?---A. :Not usually. 
We take the ledger account. If payments are being made we may assume the 
mortgage is in force. If not, we inquire why. If the loan has been repaid we 
assume it has been regularly discharged. As a rule we do not inquire into dis- 
Q. You take the company's books? A. Yes. 
By Mr. Spencer: 
Q. If you have any suspicion you can go a good deal further?--A. Cer- 
Mr. IRVINE: Mr. Chairman, I rise to a point of order; has Mr. Finlayson 
finished his statement, or are we going to start questioning him? 
Mr. /IARLER: I apologize, Mr. Chairman. 
The WIT:NESS: I think I had pretty well finished, when I answered those 
By Mr. McQuarrie: 
Q. Just before you leave that, would you be good enough to explain the 
benefits which have resulted from this system of Governmental inspection of 
[Mr. George I). Finlayson.] 

14-15 GEORGE V, A. 1924 
trust and loan companies, and in what way the present system is better than 
the old system?--A. Of course, there was no old system of inspection; the 
old system was nothing at all as far as the Government was concerned. We 
received the statements, they were simply compiled from the statements ren- 
dered, and they were issued in an abstract, a summary statement. There was 
no attempt, no pretence of inspection. The figures were, as a rule, I think, 
never altered from the statement submitted. It was found when we came to 
investigate those companies that there were some investments never author- 
ized, investments outside the power of the company. The company, under its 
charter, or under the general Act, was given certain powers of investment. In 
some cases these powers had been exceeded. Take a company, for instance, whose 
powers authorized it to invest in securities in Canada, Government securities, 
municipal securities, or securities of corporations incorporated by the Parlia- 
Inent of Canada, or within Canada. In some cases we found that government 
bonds of foreign countries had been invested in. In other cases, bonds, and 
securities of corporations incorporated in the Unitcd States had been invested 
in. There were a number of cases of that kind. These were unauthorized 
investments. In some cases they had caused loss. That, I think, is entirely 
prevented at the present time. 
By Mr. Maclean: 
Q. They were all cleaned up, all these illegal investments?--A. They were 
either cleaned up or written off; I do not say they have recovered all that 
had been invested in them. There was also the question of loans to directors. 
Under the old Act of 1914 loans to directors were permitted; there was no 
prohibition. The Act of 1922 imposed that prohibition. As a result of our 
investigation, we found that between 1920 and 1922, much of the trouble aud 
much of the weakness of these companies had arisen from the fact that loans 
were made to the directors of the company improperly or imperfectly secured. 
Under the Insurance Act since 1910 no loans to directors of insurance companies 
have been permitted. Loans to directors existing before 1910, in the case of 
the Insurance Act, were permitted to be continued; it was not made retro- 
active. Loans placed in good faith before the passage of the legislation were 
permitted to be continued, but no new loans were allowed. We followed the 
same course in amending the Loan and Trust Companies' Act in 1922; we said 
that thereafter there should be no loans to directors of these companies. Loans 
placed in good faith before that were permitted to remain. There is also the 
question of charged interest on loans in arrears. We found that many com- 
panies were c]mrging interest on loans that were long past due. The loans 
were dead, frozen. Some companies had carried into their revenue the interest 
that was being charged up to these loans, interest at the original rate was being 
credited and charged to the loan just as if it were being earned. In some cases 
we found that dividends had been paid to the shareholders out of this charged 
up interest. In some cases we found this; we found that companies with loans 
in arrears had foreclosed the property and had continued to charge interest at 
the original mortgage rate on the real estate account. 
By Mr. Euler: 
Q. Does that regulation concerning no loans to directors apply to com- 
panies in which directors of the insurance company may also be directors?--- 
A. No, we have not gone that far, sir. We realize the difficulty of going that far, 
to say that a loan company shall not make a loan to any other company in which 
the director of the loan company is also a director. That is what you mean, is 
it not? 
Q. Yes? A. It does not go that far. Dealing with this question of real 
estate, we have found that some companies--there are very few, I must say 
[hIr. George D. Finlayson.] 

had followed that practice, they had made a loan at 8 per cent, 9 per cent and 
10 per cent, the loan had got into bad standing, and they had foreclosed. They 
got a valuation of the property which was considerably in excess of the value 
of the mortgage at the time of foreclosure, and they continued to charge interest 
to that real estate account at the original 8 pcr cent, 9 per cent or 10 per cent, 
notwithstanding the fact that there may have been little or no revenue derived 
from the propert.y. That, of course, we regarded as a very bad practice, and in 
our first year's examination, in all those cases we wrote back or noted this inter- 
est and wrote it off the book value of the property. 
By Mr. Good: 
Q. You have had to revise the financial statements of these companies? 
A. Oh, very frequently. 
Q. Write down their assets?--A. Yes, sir. In the case of real estate, we 
have had more valuations on real estate in connection with the loan and trust 
companies during the past two or three years than we have found necessary in 
the case of insurance companies for the last fifteen years; mainly, I believe, 
because of the fact that these loans had been carried on without proper appraise- 
ment and valuation. 
By Hon. Mr. Stevens: 
Q. How many of these loan companies accept deposits?---A. About one 
half, I should say. I can give you the exact number. 
By Mr. Maclean: 
Q. Roughly, what is their total dcposits?--A. The deposits of the fifteen 
loan companies incorporated by the Dominion Parliament, at the end of 1923 
were fifteen million dollars, roughly speaking. 
By Hon. Mr. Stevens: 
Q. That is the aggregate?--A. That is the aggregate. Out of fifteen com- 
panies there are eight that take deposits. 
Q. And any of the trust companies?--A. The trust companies take deposits 
but they call them " guaranteed funds "; that is, money deposited with the com- 
pany in trust for investment. The relation is not that of debtor and creditor, it 
is a trustee deposit. 
By Mr. Good: 
Q. Have you found in any case the deposits to be jeopardized by bad man- 
agement or bad accounting?--A. Well, of course, the business of the companies 
as a whole has been weakcned by bad investments in some cases. 
By Mr. Coote: 
Q. Have you had any failures?---A. :No, sir. 
Q. You have not had to close up any of the companies?--A. :Not so far. 
By Mr. Eder: 
Q. Have you authority to close up a company if you think it necessary to 
do so?--A. Yes, sir. 
By Mr. McQuarrie: 
Q. Do you think the Government inspection has averted any disasters?-- 
A. It is always very difficult to say what might have happened. 
By Mr. Eule': 
Q. Have you ever closed up a company?---A. A loan company or trust com- 
[Mr. George D. leinlayson.] 

14-15 GEORGE V, A. 1924 
Q. Yes, as a result of your inspection, finding it is in a bad condition?-- 
A. ;No. 
By Mr. Maclean: 
Q. But you made them improve their position? A. We think so. 
By Mr. Irvine: 
Q. Is the inspector under a penalty to make his report annually to the Min- 
ister? A. No, it is set out by the Act, and he always has done it. 
Q. Just exactly what is the power of the Minister of Finance when he gets 
that report? A. The Act as it stands now, with the amendments of 1920 and 
1922 provides for the systematic yearly inspection of the companies and a report 
by the Superintendent to the Minister. Then the procedure is as follows:-- 
" (1) If as the result of the examination as aforesaid of any com- 
pany the Superintendent believes that the assets of the company are 
insufficient to .ustify its continuance in business, he shall make a special 
report to the Minister on the condition of such company. 
(2) If the Minister, after a reasonable time has been given to the 
company to be he,rd by him, and upon such further enquiry and investi- 
gation as he sees fit to make, agrees with the opinion of the Superinten- 
dent, he may suspend or cancel the certificate of the company, and the 
company shall thereupen cease to transact further business. Provided, 
however, that the Minister may, during such suspension or cancellation, 
issue such conditional certificate as he may deem to be necessary for the 
protection of the public. 
(3) If the Minister deems it advisable, the said conditional certifi- 
cate may provide that the company shall, during the continuance of such 
conditional certificate, arrange for the sale of its assets and for the trans- 
fer of its liabilities to some other company under the provisions of sec- 
tions seventy-one and seventy-two of this Act. 
(4) If upon the expiration of the conditional certificate no arrange- 
ment satisfactory to the Minister has been made for such sale and trans- 
fer, and if the company's condition is not then such as to warrant the 
restoration of the company's certificate, the company shall be deemed 
to be insolvent." 
By Mr. Euler : 
Q. Do you think, Mr. Finlayson, if you had the double liability in the 
Act it would be of much protection to the public?--A. I do not think it is 
necessary. I am going into that largely on our experience with the insurance 
companies. We have no double liability there and the insurance companies 
are under a very much more serious hazard, particularly fire insurance com- 
panies, than the loan, trust, or life insurance companies are. We have never 
thought it would be beneficial to hae the double liability on shareholders. I 
should point this out, that in our revised statements we never give any credit 
whatever as an asset to unpaid capital, subscribed but unpaid capital. There 
have been companies that carry that into their assets and treat it as a good 
asset, but we write it out. 
By Mr. Irvine: 
Q. Do you think, Mr. Finlayson, that the principle of insurance could be 
exended to banking?--A. I should think that would be more a question for 
expert bankers; I am not an expert banker or in fact any kind of banker. 
Q. From your general knowledge, do you think it would be possible?-- 
A. I could never see any reason, as far as new transactions are concerned, why 
[Mr. George D. Finluyson.] 

inspection would not be very beneficial. As to whether bank inspection will 
cure any evils that are existing now, that is another question. 
Q. I did not limit my question to the principle of inspection, but to the 
principle of insurance.---A. You mean only deposits? 
Q. No, the principle upon which insurance is organized, the co-operative 
idea. --A. Most of our insurance companies are not co-operative. 
Q. Are not the policy holders actually shareholders in most of the com- 
panies?---A. No; we have only one purely mutual life insurance company in 
Canada. All the others are stock companies. 
Q. Is not the tendency towards mutual insurance?--A. It is not perceptible 
in Canada. 
By Mr. Speakman: 
Q. Before you leave that point, are there any trust, loan or insurance 
companies operating under purely provincial charters; if so, do the powers of 
your inspection extend to them? A. No. There are quite a number of loan 
and trust companies incorporated by the various provinces. In fact, the 
maiority of the trust companies are under provincial iurisdiction. For loan 
companies, I should say it numbers about equally, half and half, under the 
jurisdiction of the Doninion and under the jurisdiction of the provinces. In 
the case of the trust companies, the larger trust companies are under pro- 
vincial jurisdiction; I should say probably fully three quarters of the assets of 
the trust companies are assets of provincial corporations, and under our con- 
stitutional system in Canada the Dominion Parliament can exercise no authority 
whatever over these companies incorporated by the provinces. 
By Mr. Irvine: 
Q. Has the inspection anything to do with the fixing of interest, or regu- 
lating that in any way?--A. No. 
By Mr. MacLean: 
Q. On the whole, considering these companies that are under Federal con- 
trol, you hink it is in the public interest to continue that system of inspection? 
---A. We think so. We think this; we do not say that Government inspection 
has removed all the weaknesses of these companies; these weaknesses had 
grown up, and Government inspection is not, in a very short time, going to 
remove them. We feel, however, that so far as new transactions are concerned, 
Government inspection has been and will be very beneficial. 
By Mr. Coote: 
Q. Does the Act limit the amount of the loan you can make, in propor- 
tion to the paid-up capital of the company?--A. No, sir. 
Q. Do you have any loan existing exceeding the paid-up capital of the 
company?--A. Not to my knowledge. In fact, I think I can say definitely 
there are none. 
By Mr. MacLean: 
Q. Are the big trust companies in Toronto and Montreal mainly under 
provincial ]urisdiction?--A. The larger ones are under provincial jurisdiction. 
The National Trust Company and the Toronto General Trust Company--these 
are the companies you were probably thinking ofare under provincial iuris- 
diction. The Trust and Guarantee Company is  provincial company. 
By Mr. Spencer: 
Q. Do they all have provincial government inspection?---A. Not all pro- 
vinces. Ontario has at the present time. The province of Quebec has had an 
[Mr. George D. Finlayson.l 



Bg Mr. Good: 
Q. When was that report issued, that 1923 report?---A. This list of valua- 
Q. Yes.---A. It is dated January 1st, 1924, but I think it appeared on the 
20th or 23rd of January of this year. 
Q. Then it was compiled subsequent to the failure of the Home Bank?-- 
A. Yes. 

Bg Mr. Shaw: 
Q. How do you arrive at these values?--A. The bank stocks are very 
simple; we take the quotations. 
Q. Have vou access to the Department of Finance to get any information 
they have?--/L I suppose we have, but we have never asked for it or availed 
ourselves of it. We do not think that that would be as valuable as the market 
quotations. I do not think it would have been, in the case of Home Bank 

Bg Mr. Coote: 
Q. Would it not be a wise provision to state in the Trust Companies' Act 
that they should not hold bank stock, or any stock carrying with it a double 
liability provision?---A. I mu.t say that bank stock is not popular as an invest- 
ment with these companies, and has not been for some years. They have 
always been afraid of the double liability clause. 

Bg Mr. McMaster: 
Q. Just before we get further into this aspect of the question, there is 
something I am quite clear on. Do you ever, in your department, examine trust 
companies with provincial charters? A. No, sir, we have no right to do that.. 
Q. For instance, you do not look into the Royal Trust Company?---A. No, 
sir. I must make one exception to that. The province of Nova Scotia has 
passed a Loan and Trust Companies' Act very similar to ours, and they asked 
our assistance in inaugurating the system of inspection. We did, as a matter 
of fact, inspect the loan and trust companies of that province last year, but 
more by way of comity between the two governments than by any authority 
on our part. 

By Mr. Coote: 
Q. Is bank stock a trust security?--A. Yes; trust companies are authorized 
to invest in it. They can invest their company funds in it, but not their tst 
funds. The trust company has its own company funds, its capital and its 
eserve, and they are authorized to invest that in bank stocks. 

By Mr. Maclean: 
Q. And loan money to brokers on bank stocks?--A. Of course, you must 
remember that as far as trust funds are concerned, in the event of a deposit 
being made with a trust company, in trust for investment, if there is no 
authorization given, then the Trustee Act applies, and the investment must 
be made in trust securities. However, all the trust companies are authorized 
to invest trust funds in accordance with the terms of the trust. The depositor 
may deposit money with the trust company and sign a paper which gives 
discretion to the trust company to invest these funds. With that form, the 
company has practically unlimited discretion in the investment, because they 
are investing in accordance with the terms of the trust. 
[Mr. George D. Finlayson.] 

14-15 GEORGE V, A. 1924 
By the Chairman: 
Q. And the depositor has no further security than a depositor in an 
ordinary bank?-A. That is so, where they deposit the money on those terms 
and that is one of the things we have tried to tighten up in this Trust Com- 
panies' Act, in our amendments of 1922. 
By Mr. Coote: 
Q. Do not these trust companies invest a lot of money in real estate mort- 
gages?--A. Yes; that is a trustee security. 
Q. A large percentage of their money?--A. A large percentage. 
Q. What is your experience in connection with the loans made by some 
of these trust companies on western real estate? Have they not sustained 
very large losses?---A. Yes, some of them have sustained losses; some of them 
have written off interest, some written off principal. They have foreclosed and 
taken their losses. 
Q. Have you sent your examiners to the western offices of any of these 
companies?--A. In some cases. 
Q. To inquire into the rcal security behind these mortgages?---A. Yes. 
By Mr. Shaw: 
Q. You have suggested that the person who deposits money on trust is not 
in the position of debtor and creditor; that relationship is not established. 
What I want to ask is, would it not be possible to extend this same principle 
to the banks to some extent, and in that event the depositors might have a 
preference instead of as at present, where they are unsecured creditors?-- 
A. They have a preference now. 
Q. :Not the depositors?---A. As against the shareholders. 
Mr. McMAsT: Yes, but they have that in any company. 
By Mr. Shaw: 
Q. Suppose you go to a trust company with $1,000 with instructions to 
them to invest that either in your name or their name, and they invest it in a 
particular way; the benefits of that come to you entirely, and if the company 
failed you are perfectly secured so long as your security is there. Is that not 
true?--A. So long as the security is all right, that is first rate; but supposing 
that the security specially allocated to this particular accour._t is bad in the 
event of failure, the depositor is worse off than if he had a general claim against 
the assets of the company. It works both ways. But according to your 
method, if the company got into difficulties and became insolvent, say, your 
depositor has to fall back upon his particular security. That security may be 
the worst in the bunch, and he will suffer more than if he took his lot among 
the other depositors on the general assets of the company. 
By Mr. Spencer: 
Q. Under Government inspection his security is liable to be pretty good?-- 
A. We think there is a fair chance of it. 
By Mr. W. F. Maclean: 
Q. Is there any way by which the trust and loan companies of the country 
could come under Federal urisdiction? A. Only by an amendment of the 
British :North America Act. 
Q. You would not care to give an opinion as to whether that is desirable or 
not?A. Our opinion might be biased. 
[Mr. George D. :Finlayson.] 

14-15 GEORGE V, A. 192-1, 
By Mr. Coote: 
Q. The financial conditions fluctuate so nmch between different periods, that 
you think it would be advisable to determine what the risk is? A. I think so; 
I do not see how it could be done scientifically. 
By Mr. Spencer: 
Q. You say that before the Government took over the inspection of trust 
and mortgage companies they were obliged to send in monthly returns to the 
Minister of Finance?A. Not monthly, yearly. 
Q. Yet when the time came when it was decided to have inspection you 
found there were a lot of rcmedies needed?---A. Yes. 
Q. Would I be correct in saying that there was about the same attention 
given to the returns of the loan and trust companies by the Finance Depart- 
ment as is now given to the returns from the banks, that otherwise, the returns 
were just compiled and advertised?--A. Yes, I think they were just compiled, 
there was no authority to alter a statement. There was no authority to the 
Minister or to any official of the Department to write off unauthorized invest- 
ments or anything of that sort. They practically had to accept the statements 
as they were officially submitted. 
Q. Then it is quite possible that if we have a Government inspection of 
banks, that Government inspection will be of the same benefit to the present 
banking system as the Government inspection of mortgage, loan and trust com- 
panies has been to those companies?--A. I cannot speak as an expert banker. 
There may be some peculiarities in the banking system. I think, however, that 
prima facie that is true; there would be a benefit. Following up that question, 
I would like to point out that there is a vital difference between the assets of 
insurance, trust and loan companies, and the assets of banks; mainly in this; 
that in those companies we give no consideration whatever to personal security. 
Our insurance, trust and loan companies are permitted to make loans on col- 
lateral. We value that loan strictly and value the tangible security pledged. 
If we cannot find sufficient value in the tangible security to cover the loan, a 
deduction is made or the loan is wiped off. A man of great resources may have 
a comparatively small loan from one of those companies-- 

By Mr. McQuarrie: 
Q. What do yu mean by it being wiped off?--A. If the security pledged is 
worthless, we simply disallow the loan entirely, regardless of the value of the 
borrowers' covenant. 

By Mr. Hughes: 
Q. You mean it is written off?--A. Written off. 
whatever to the personal security of the borrower. 

We give no consideration 

By Mr. McQuarrie: 
Q. But the borrower will have to pay?--A. He is retained on the covenant, 
but we do not rely on it. In our revision of the statement we say that if the 
tangible security pledged becomes worthless, the loan is worthless, from our 
standpoint. We do not give any credit for the personal covenant. We are 
required to do that. In the case of the banks, of course, that is altogether 
different. A bank loans on personal security, and on the security of all kinds 
of assets. It is interesting to note the constitution of the assets of our Canadian 
life insurance companies. At the end of 1923, real estate was three per cent 
of the total. That almost exactly agrees with the banks. There is also about 
three per cent of their assets in real estate. We have in the life companies, 
mortgages 25 per cent; policy loans, that is, loans on the security of the corn- 
[Mr. George D. Finlayson.] 

14-15 GEORGE V, A. 1924 
By Mr. Shaw: 
Q. Do you change your auditors around from time to time?--A. As a rule, 
yes. We like all our men to get experience of all our companies so far as 
possible; we realize the advantage of experience in this work. 
By Mr. McQuarrie: 
Q. What increase do you think it would involve in your staff to enable you 
to take over the inspection of banks?--A. I have never given any consideration 
to it, 1Ir. McQuarrie, I am really not able to say. As I have said, we have 
had no experience whatever with banks; we are not bankers. 
By Mr. W. F. Maclean: 
Q. Would you be prepared to say, inasmuch as we have branch banks in 
Canada, whether a system of bank inspection would have to include the inspec- 
tion of branches as well as the inspection of head offices?--A. I could only 
answcr that by analogy with our other companies, and I cannot see that the 
inspection of branches should be necessary. It seems to me that the weakness, 
in our experience, has all developed with the large transactions; and no matter 
where those transactions have been entered into, everything about them is known 
at the head office. 
By Mr. Shaw: 
Q. Was there any opposition at the outset to the inspection of the loan, 
trust and insurance companies? A. I was not here at the outset, but to judge 
from the records, I do not think there was any really serious opposition. 
Q. Do the companies favour it now?---A. I think they do as a rule. There 
may be an occasional dissent, but I think it is fairly well accepted. It is rather 
interesting to note some of the comments recorded in Hansard in 1875 when 
inspection of insurance companies was first suggested. 
By Mr. Hughes: 
Q. Does the Government pay the salaries of your men, or do the com- 
panies pay any part of it?--A. The government pay the salaries, and an assess- 
ment is made on the companies for the amount of the total expenses. 
Q. What do you mean by expenses? A. Everything. The entire expenses 
of this Department is defrayed by an assessment upon the insurance companies. 
By Mr. W. F. Maclean: 
Q. They have to pay without making a kick?--A. As a rule, there is no 
By Mr. Healy: 
Q. Is there available, and I suppose there is--the total amount of deposits 
over a period of 20 years in the chartered banks of Canada? A. I should think 
that that is available in our records. 
Q. Also the total losses during a period of 20 years in deposits by failure 
of chartered banks?---A. I should think that that is on record. 
Q. Could you, from those two statements tell us what percentage of interest 
on deposits would have to be set aside in order to insure savings deposits from 
now on, say? 
Mr. GOOD: Assuming that the losses in the future would be the same as in 
the past. 
Mr. HEALY: We are hoping that they will not be so many. If you could assume that the losses in the future in the next 
20 years were going to be the same as the losses of the past 20 years, you could, 
in the way you suggest, find the percentage. 
[ George 0. FinJayon.] 

By Mr. Healy: 
Q. Could you file with the secretary a statement of those two faets?--A. 1 
could get it fi'om the Department of Finance; possibly it is on record already. 
Q. The reason I am asking you is that it is the business of an insurance 
actuary to give the figures?---A. I would not say that it is the business of insur- 
ance companies, because, so far as I know, in no place in the world do the 
insurance companies insure deposits, the ordinary deposits in chartered banks. 
Q. We have now in Ontario a bank which has the Government behind the 
deposits, and which pays four per eent?--A. Yes, that is a Government bank. 
Q. What some of us would like to find out in the event of the banking in 
this country getting into the hands of the Government--we find this particular 
government bank paying four per cent on insured deposits, while the chartered 
banks are paying but three per cent on deposits that are not insured, and the 
danger is now that the Govermnent will go into the business of banking and 
become a competitor of the chartered banks. 
An Hon. MEMBER: Let it go. 
Mr. HEALY: That would be a very bad thing. I think some of us have an 
idea that some of the savings deposits might be insured so that the chartered 
banks will retain those they have without losing them to the Government bank. 
Mr. W. F. MACLEN: Do you not know that the Government in the United 
States is issuing savings certificates now at four per cent? 
Mr. HEn,Y: I am talking about banking in this country. 
Mr. GOOD: I think Mr. Finlayson understands the question. It will take 
him a little time to work it out. 
WIWESS: I have not the figures at the present moment. 
By Mr. Euler: 
Q. Do you know of any private institution organized for the sole purpose 
of insuring deposits? A. I am almost sure there is not. In the United States, 
insurance companies do in some cases insure deposits of a certain character. 
That is, there are deposits made with banks in the United States in pursuance of 
some statute, and there are public bodies, such as trustees and corporations, 
school districts, and that sort of corporation, which are required by the statute 
under which they are operated to have deposits with the bank insured. In that 
case the guarantee insurance companies do insure them. The funds of some 
States, possibly all, are required, when deposited with a bank, to be insured, and 
the insurance companies take that risk; but such a thing as the insurance of the 
deposits of the ordinary public by an insurance company, is I think, unknown in 
the United States. 
By Mr. McMster: 
Q. Do you know the premium that is charged by such companies on those 
deposits? A. I have it on file, Mr. McMaster; I would not like to say off-hand. 
I am speaking only from recollection. I could easily obtain it for the Committee. 
Q. Is it a very heavy premium? A. 1/o, it is a comparatively light 
By Mr. Good: 
Q. It would not be one per cent? A. I think it approximates one-half that. 
By Mr. Shaw: 
Q. Mr. Williams told us that $25 would insure $1,000,000 of deposits?--A. 
That is on the experience of losses in deposits. 
Mr. GOOD: Mr. linlayson can file what information he can get. 
[Mr. George D. Finlayson.] 

The CHAmMA: We will do our best, and see how far we have progressed 
at one o'clock. 

Dr. H. M. TORY, called, sworn and examined. 
By the Chairman: 
Q. I would suggest, Doctor, that you give us your qualifications, which I 
am sure will be interesting to the members of this Committee.--A. M.A., D.Sc., 
LL.D., F.R.S.C., F.R.H.S.-- 
By Mr. McMastcr: 
Q. What does F.R.H.S. mean?--A. Fellow of the Royal Historical Society; 
President of the University of Alberta, Administrative Chairman of the Council 
of Scientific and Industrial Research for Canada. 
Mr. hIACLEAN: And a member of this holy family? 
Mr. McMAsTER: But in a very restrictive sense. Mr. Chairman, I think 
you ought to ask Dr. Tory what he has done. 
By the Chairman: 
Q. What have been your activities in Canada in regard to agricultural 
credits?--A. I was a member of the Commission sent by the Alberta Govern- 
ment to Europe in 1913 as part of the American Comxnission on Agricultural 
Credits, and assisted in the report which was afterwards published by the 
Senate of the United States, as a Senate document on agricultural credits in 
Europe. That was my. main activity in connection with agricultural credits. 
I made a report to the Alberta Government in 1914 on the subject I am now 
discussing with you. That report dealt only with the European situation. 
There were no general schevaes of agricultural credit in existence in America 
at that time. We were working therefore, on European methods for the purposes 
of securing information. 
Q. And since then, Doctor?---A. Since then I have been President of the 
Alberta University and have taken continuous interest in this subject, but until 
appointed to do this work I had not been officially connected with agricultural 
credits in any way. 
Q. When were you appointed?--A. August 23rd, 1923. 
Q. By a letter from the Minister of Finance?--A. Yes. 
Q. Giving you your instructions, which appear on page seven of your 
report?---A. Yes. In interpreting the instructions given to me by the Minister 
of Finance, I understood them to mean that he wanted me to bring together 
informat.ion on systems of agricultural credit, as requested by this Committee, 
or the Committee on Agriculture last year, and his letter to me was accompanied 
by a document which I have printed in this report, and which was the final 
finding I think, of the Committee on Agriculture last year, commending a 
further study of the problem. I may say, Mr. Chairman, that while I was 
asked on August 23rd to do ibis work, it happened that I was on my holidays 
and was not able to actually get to work until about the 1st of November, so 
that the report, as now in the hands of the Committee, has been done under 
rather strenuous conditions, in order as requested by the Minister to get it 
before Parliament this year. This is my apology for any errors in form which 
may appear, as the result of searching a great many documents, and continuous 
By Mr. Maclean: 
Q. When did you present this report?--A. The letter is dated-- 
The CHnMAN: The date does not appear. 
[I)r. H. M. Tory.] 



that money would flow naturally--not by forced methods--but naturally into 
agricultural channels and at reasonable rates of interest. The result was that 
in the early beginnings of the movement, organizations of borrowers who 
pledged their unlimited security for the borrowings of all the persons concerned 
were the first to be established. That is to say, 50 men who were land- 
owners in a community got together and pledged their total land holdings, for 
all of the mortgage loans of lhe whole organization, arranged the amount of 
money which each was to be permitted to borrow, and issued bonds on the 
markets of the world--of their world at least--for the repayment of these 
bonds on tile basis of security which they could all give. That was the 
unlimited liability idea and was the first idea behind the rural credit system 
of-Europe. I am speaking now especially of long term or mortgage credit,. In Ger- 
many where the movement began in 1765 to 1770, after the close of the Seven 
Years' War, conditions were very much like conditions we have in this country at 
the present time, or were more like conditions we had two years ago. Money 
was scarce, and individual borrowing was the method. Men were going 
bankrupt, large landowners, because of their inabilitv to secure money to carry 
on their businesses. Some organized schene of credit was absolutely necessary. 
There was no desire to force money into unnatural channels, but to create a 
security which would cause money to flow naturally into these channels. That 
they s, ucceeded in that in Germany is shown by the fact that 50 years after- 
wards, when the securities of the towns and cities and l;he Government of the 
German States went down, if my memory serves me, when 4's went down to 20, 
the bonds of these organizations never went below 50; as late as 1920--in this 
century--the bonds of man3" of these organizations {The Landschaftcn}, which 
are really mortgage loan companies., their 4's were still being quoted a little 
above par. I do not know what has happened since 1920, but that will give 
an indication that money found its natural outlet in those organizations 
because people who had money to lend were satisfied with the security, and were 
willing to lend at rates commensurate with the security. At no time since their 
inauguration, have I been able to find that these organizations could not borrow 
money a.s cheaply as a government of a town or city or municipality could 
borrow it. That has been a result of tile co-ordination of credits to enable men to 
work together for the purpose of borrowing. Now, in Germany, the whole scheme 
is worked out in the interest of the borrowers. That is to say, the borrowers 
give all the guarantee, and if there are any profits made, they are made in the 
interests of the organizations to which they belong. There are no dividends to 
private investors except fixed interest on bonds purchas.ed. Investors lend the 
money as they would lend it to a government, and they get the interest; any 
orofits as the result of operation go to the organizations themselves. 
In France you find a different state of affairs. The corresponding organiza- 
tion in France, is .called the Credit Foncier, which is an organization under 
legislative control with a certain grant made by the government originally to 
give it a start. I think the total amount was 10.000,000 francs, which were 
granted to put the Credit Foncier on its feet. It is a joint-stock company 
managed like a private company but its interest charges are regulated by the 
Government. I mention Germany and France to you because their institutions 
are types of the two forms these organizations have taken. That is to say, 
organizations of borrowers in their own interest, therefore, in their regulations, 
interest charges are made as low as possible; and, the ioint-stock company 
organization, with regulated interest rates. 
[Dr. It. M. To,.] 


not exceed 
bonds. In 
bonds. In 
term when 
There is a 

14-15 GEORGE V, A. 1924 
By Mr. McMaster: 
Q. By the State?-A. By the State. In France the interest charges can- 
6 per cent of the cost of the money obtained through the sale of 
all these organizations money is raised by the selling of long-term 
Germany the bonds are often non-redeemable; there is no real fixed 
they must be repaid. In France the bonds may run for 70 years. 
fixed rate of interest in a definite relation to the cost of obtaining 

money. I have not been able to get information of what the after-war effect 
the interest charges have been in France. They may be different to-day. I 
obtained the German information as late as 1920 but I could not get the in- 
formation regarding France for any later time than I had in my possession, 
which was 1914. The amortization principle applies in all these cases. That 
is to say, the re-payments re made on the basis of a certain percentage 
covering the period of the mortgagor. Generally speaking, it does not exceed 
one per cent, but in some places it is as low as one-half of one per cent. I think 
one-half of one per ccnt would pay a bond in 70 years; one per cents pays it in 
35 years. I have not worked out the details of that. ttowever, the main point 
[ wnt to emphasize is that all the European plans were based on the amortization 
idea. That is, the debt would be paid for out of the products of the land. 
If a man mortgaged his land, it was understood he borrowed this money and 
repaid the capital debt out of the earnings from the land. 
The United States Commission was very much impressed with the idea of 
amortization, and I think they would be inclined to say that the one thing 
that they brought from Europe that ws distinctly worth-while was the idea of 
amortization, on long term mortgages. In 1916, after a good deal of agitation, 
the United States Government formed a plan which you will find described in 
Chapter four of this report. 
By Mr. Maclean: 
Q. On what page?--A. On page Ixxvi. "Rural Credits in the United States." 
I have tried to give a little sketch there of the reasons why the problem became 
an acute problem in the United States and as [ interpreted what happened, it 
is this; that in the days when lands could be bought cheaply, say at a dollar or 
two dollars an acre--at first it ranged from one to three dollars an acre--the 
buying of land was a very simple matter, and if one was fortunate enough to get 
possession of reasonably goods lands with a market for their products, they 
could hope to pay for that land within three or five years. By 1915 however 
the American Deprtment of Agriculture stated that 6-7 of all good available 
land in the United States had been taken up. In the meantime the price of 
land had risen from its or]ginal cost, say $1.25 an acre--to in some cases $250 
an acre, and clearly the question of paying off the mortgage on lands bought at 
$1.25 was entirely different from that on land bought at $250, unless a man 
had resources other than the resources of his land. If he had resources that 
could be made available in a period of time, he might take a mortgage and 
satisfy it in that period of time, but my udgment of the matter is that almost 
without knowing it the mortgage situation in the United States became a 
very difficult one, because of the rapid extension of farming to the westward. 
There was really not enough money available through the ordinary channels. 
This was further complicated by the rise in land values and the necessarily large 
capital investiment required by the individual. The result was  better credit 
scheme became necessary. If you will read pages lxxvi and lxxvii, you will 
see a little discussion on the way the mort.gage business grew in the United 
States. In 1913 it was estimated  by the Department of Agriculture that there 
were $3,599,000,000 in mortgages on farm lands in the United States. In seven 
[Dr. EI. M. Tory.] 

14-15 GEORGE V, A. 1924 
by the Land Bank System. I have set out on page xcix, in a little diagram, 
the way these banks function. You will see it there. Now, the American 
Congress tried to get the same ideas into their system that were behind the 
German system and the French system. They tried to combine the two ideas 
into their sy,stem; that is to say, the Federal Land Banks are organizations 
organized in the interest of the borrowers and in a given comnmnity a small 
group of people are formed who are borrowers. They apply to the Federal 
Land Bank of their district for their money. The Federal Land Bank has the 
right to sell bonds to find money for the credit of the people located in their 
district. There is no private money put in the Land Bank in the sense that 
they sell stock in the bank. The money in there is money .obtained at a fixed 
rate of interest by the issue of bonds, and any profits go to the borrowers 
themselves to carry on their om institutions. In this, t'he Federal Land Bank 
System follows the system of the German Landschaften. 
By Mr. IV. F. Maclcan: 
Q. On the security of a general mortgage?---A. A mortgage of all the 
property. But the local groups do not, as they do in Germany, take unlimited 
liability for all their property. If a man wants to borrow $I,000 lie has to 
buv stock in his local association equal to five per cent of his loan, viz., $50 
pa{d in in cash and assume responsibility for another $50. He subscribes $50 
in cash and in case of loss lie is liable for another $50. If be has not the money 
to buy the five per cent of stock at the beginning, it is taken out of his loan. 
By Mr. McMaster: 
Q. Does he not buy five oer cent of the stock of his local organization? 
I think you said the bank?--A. He buys five per cent of the stock of the local 
organization. On that he is paid dividends. They have been paying on the 
average dividends of six per cent. 
The reason for the 5 per cent purchase of stock is that while the Govern- 
ment put be'hind each one .of thos.e banks $750.000 as a security fund; t'hat is, 
$9,000,000 in all: a condition was made that the amount of loans at any time 
could be twenty times as much as the paid-up capital of the bank. To begin 
with they could loan twenty times $750,000. In order to keep up the capital- 
ization of the bank, if a man bought five per cent of stock he was really 
capitalizing his own borrowings, as the $50 of capital would secure $1,000 on 
loan. So the borrower capitalizes his own loan. In addition he becomes liable 
for an additional $50 in case losses are made by his association. The local 
associations are really small double liability banks. 
By Mr. W. F. Maclean: 
Q. Is there an unlimited supply?--A. :No, but so long as the land values 
are in accordance with the appraisal that the official appraiser puts upon them, 
any bank can build up its loans indefinitely, depending upon the borrowings 
asked for. Ie really depends on the num, ber of individual demandin.g loans. 
By lrr. Hughes: 
Q. When a loan is paid off, is the capital paid back?--A. It is paid back 
and all liability to the association ceases. 
By Mr. McMaster: 
Q. Does not a bank sell bonds to find the monev?---A. Yes, but that is a 
different transaction altogether. All of the twelve anks were authorized to 
make loans at not more than six per cent, and to charge not more than one 
per cent above the cost of the bonds sold to get the money; so that bonds can 
never be sold at a greater cost than five per cent. If they can sell for four and 
[Dr. FI. M. Tory.] 

14-15 GEORGE V, A. 1924- 
By Mr. Hughes: 
Q. Have any of them got into financial trouble at all? A. None of these. 
By Mr. Shaw: 
Q. Is the control of the interest rate eEective? A. Absolutely. 
Q. We cannot do it in Canada, and I was wondering how they did it there? 
--A. They have to sell their bonds through the central agency, and they cannot 
sell a bond otherwise. Furt, hermore, they are under very definite regulations. 
Mr. W. F.M.CLEAN: Because the credit of the whole country is behind the 
WTESS: May I ust say this about the credit of the country. These 
organizations have no guarantee from the Government of the United States other 
than the fact that it gives them $750,000 to begin with, and already they have 
paid back in profits made in the bu.iness $7,000,000 of tile total $9,000,000 that 
was loaned originally. The United Statcs Govermnent has written into every 
bond issue, in so many words, that these bonds are not guaranteed by the United 
States Government. 
By Mr. Irvine: 
Q. Do you think it would be practicable for the Government to discount 
the collateral of those soeicties. Would that not be equally effective, and at the 
same time save a great deal of unnecessary expense?--A. You are speaking 
of the intermediate credit; I am talking of the long term credits. 
Q. No, the long term credits?--A. Based on thirty years' experience, I do 
not think you would get any banking system in the world to so discount with 
moneys uscd for current business. 
Q. I mean the Government?--A. For the moment, all I can say is that 
the Government has not done it. The Govermnent scheme has been to allow 
the farmers to organize in their own interests and to put their security on such 
a basis that they can get money cheaper. That money flows into the channels 
for their credit as it flows in ordinary business channels. That is what the 
Government is seeking to do. On page lxxxviii you will find what has been 
loaned. The Federal Land Banks, those organized in the interest of the bor- 
rowers, have $865,000,000 worth of bonds outstanding, while the Joint Stock Land 
Banks have $360,000,000 worth of bonds, not quite half as much as the others. 
I call attention to this fact that no effort has been made to monopolise the 
interest of the country by these mortgage loaning corporations, the Landsch- 
aften or the Credit loncier. All they have tried to do is to do a sufficient 
amount of loaning as to have some regulatory influence upon the interest charges 
of other organizations. In 1914 about 40 per cent of the farmers' loans in 
Germany were held through these organizations and the balance of 60 per cent 
was held by private organizations of various kinds. I do not think there is 
any doubt that the 40 per cent practically regulates by competition tile interest 
charges. In the United States today these tvo organizations, the controlling 
organizations, have about $1,300.000,00--I have the figures up to the 24th Feb- 
ruary--of the total $8,000,000.000. That is about 16 per cent, a good bit short yet 
of the German 40 per cent. But there can be no doubt that already these joint 
schemes are having a definite regulatory effect upon the interest charges made. 
particularly in the good localities. So far as long term loans are concerned, 
these are of two types. They have the principle of the private corpora/on 
with the principle of the public corporation, and they have given them sufficient 
government support to start them. But they have not given them any guaran- 
tees other than that. I think it would be safe to say this--and this is a state- 
ment made by several officials of the Government-that there is a feeling in 
[Dr. g. M. Tory.] 

14-15 GEORGE V, A. 1924 
By lr. Hughes: 
Q. Are the bonds issued by these corporations subject to income 
--A. :No. I am coming to that in a moment. Broadly speaking, that gives 
yon an outline of the scheme, buf if any points in the general plan are not 
clear, I would bc very glad to answer any question now. If any one would 
like to raise tim question of organization, I have not gone into details, even 
in the report as to how the appraisals of land values are made. It is all fixed 
by law. I have the documents.. 
By Mr. W. F. Maclean: 
Q. Would you tell us when the foreclosures come to be mde how they 
work out? 
The CH.IR.: I think the witness should be allowed to carry on. 
WIESS: Naturally when these banks get into operation they begin to 
make loans very rapidly. Approximately--I can only give an approximate 
figure--60 per cent of the loans issued under the Federal Farm Loan system 
were repayment loans; that is to say, loa.ns taken up from other companies 
and taken on under the nev system. 
By Mr. Sales: 
Q. Clearing up old mortgagcs?--A. Yes, clearing up old mortgages and 
old indebtedness. That is specially true in the last few years when the indebted- 
ness has been the refunding of old credits and debts, and bringing them under 
one central organization. The majority of these loans have been issued on 
thirty-four years' amortization scheme. If you turn to page 1.xxiii you 
will see an illustration of the way in which these loans are repaid. Where 
the interest charge is five and a half per cent an amortization rate of one half 
of one per cent is alded for the repayment of the debt. That wipes it out 
in 69 half yearly payments, or thirty-four and a half years. The general 
recommendation that I received from the people who are administering these 
banks in the United States was that 35 yeaxs was a bit long. I think that they 
would on the whole prefer to see a 20 year amortization scheme instead of 
35 year amortization scheme. That seems to: be the general idea. In regard 
to the way in which amortization works out, in certain cases they have had to 
foreclose; but I was informed at SprinWfield and Ba.ltimore that they did not 
lose the total loans, that the losses did not exceed $1,000 in these two banks, 
due to foreclosure. They had to foreclose in a certain area but they had been 
able to sell the lands to cover the indebtedness. I could not get the figures of 
the principal foreclosures in the Northwestern Sta.tes. The bank at St. Paul 
which covers Michigan, Wisconsin, Minnesota and North Dakota, was having 
a good many foreclosures up to the time I had my discussion with them, but 
they did not consider hat they were in danger of suffering heavy losses. 
By the Chai.rmn: 
Q. Are they strict in making foreclosures?---A. They have been fore- 
closing. Now, you would think that with this new ma.chinery created people 
would have been satisfiedtha.t at least there was a comprehensive machinery 
for the purpose of caring on the business of the country; but instead of that 
some States of the Union have gone into competition with this Farm Loan 
Board; and here, it seems to me, is where we should pause and think carefully 
about any plan we may put into operation. In Minnesota apparently the 
legislature believed that the Farm Loan Board was too slow in its operations; 
that it took too long to get the loan made. They informed me that that was 
one of the reasons why the Minnesota legislature authorized a Farm Loan 
Board last. year based on exactly the same idea and it is now operating a farm 
5r. H. IV[. To'.] 

tainties of the crop, that there is hesitancy in loaning t:he monev to men who 
say, "I won't keep cattle, or I won't go into diversified farming.'; 
By Mr. Sales: 
Q. Dr. Tory, I lresume you have noticed this is all being reported, and 
you do not wish to be incorrectly quoted. You do not say yourself that the of 60 cents a bushel is a fair valuation of the growing of wheat in 
Canada?--A. No, I simply say the statement was made officially by the United 
States Comnfission who went to Canada and the northern states to collect 
information in order that the tariff might be established, and they fixed $1.22 
as the cost of raising wheat in North Dakota, and I think they txed 60 cents 
as the cost in Northern Alberta. 
Mr. MCMASTER: 72 cents is my recollection, and they made a comparison 
in the cost of production of wheat in the United States and Canada, making 
a difference of some 42 cents, and they jacked .up their tariff by some 30 or 35 
cents a bushel. 
Mr. SALES: You had better put yourself straight on that. 
The WTNESS: I was only quoting. 
hIr. GARLAND: In your opinion, is the cost of 60 cents high or low? 
The WXTVESS: I think it is very low. That is only my opinion. We 
raised a little wheat at the University farm, and I would say that was a very 
low figure. 
By Mr. Sales: 
Q. How much did it cost you there? 
Mr. McMAswR: I think the witness should decline to answer that ques- 
tion under advice of counsel. 
Mr. COOKE: I will ask a question now, although probably you will prefer 
to answer it a little later on. 
Q. Can you give this Committee any idea of what percentage of the 
farmers in the norhwesiern states are in the position which you mentioned, 
where they have not the necessary security to secure a loan under the Federal 
Farm Loan System?--A. I have not the figures that will give me the exact 
information, but Secretary Wallace in his report to Congress said that there 
were over 100,000 farmers a month leaving the farms of the United States 
because they could not carry on farming. 
Q. But you cannot give us any approximate idea of the percentage?---A. 
No. I have tried to get that information. In the same report Secretary Wallace 
said that 15 per cent of the farmers in the western states were bankrupt. If 
you will allow me I can get you the exact information on that. I have the 
document, and I could get the exact statement on that. 
The CHAIRMAN: You might ay in a general way wheVher the system has 
proved to work effectively. 
The WXWNSS: I would say that I did not meet a single member of the 
Administrative Board of the'se organizations who did n.ot claim they were 
effectively working the machinery in the country. They had regulated the 
business, and had opened up channels for the flow of their moneys which would 
never have flowed into agriculture at all. 
By Mr. Coote: 
Q. You would say then., Dr. Tory, hat even in the northwestern states 
this system has resulted in keeping a ntm'ber of these farmers on their farms? 
--A. I do not think there is any doubt about that at all. 
[Dr. tt. M. Tory.] 


14-15 GEORGE V, A. 192,1. 

By Mr. Maclean: 
Q. And therefore, the whole thing is beneficial?--A. I do not think there 
is any doubt about that. I do not know what would have happened if there 
had not been such a scheme in operation. May I quote these figures? Under 
the Farm Loan System there has been loans, up to the 28th of February, from 
St. Paul one of the centres, just over $104,0(}0,000; from Omgha, as a centre, 
$97,000,000; from Spokane, $87,000,000; and from Columbia, $78,000,0(}0; and 
New Orleans, $74,00(},0(}0. I make this general statement here: "Every state 
in the Union of Porto Rico have received fin, ancial assistanve from Vhese 
banks in amounts varying from $254,000 for Deleware, to $93,000,000, for 
Texas." I am quoting the individual states. The state receiving the most 
money from organzations of this kind has been the state of Texas, $93,000,000. 
I might at this point, if it is agreeable, take up the other side of the Farm 
Loan Boad Business, the intermediate credit banks, and say a word about 
them. The call for better farm loans, what we call intermediate, which is the 
term that is used, or short term credits, began in the United States a good 
many years ago, and many of the State Banks were organized for the express 
purpose of meeting that problem and taking advantage of the financial possi- 
bilities of business that was offered by a better system of farm credits. The 
whole system that grew up into the Federal Reserve Board worked out along 
the line of extending and simplifying credit, with a view to probably better 
financing the smaller banks in the country, to make it possible for the smaller 
banks to operate better than they were doing at the time. The real difficulty, 
as I see it, was the difficulty of the decentralization of the reserves of the 
banks, and the impossibility of getting them to flow rapidly to a point where 
the money was needed. So the Federal Reserve was brought into being for 
the purpose of co-ordinating the banks and their assets into some common 
fund which could be distributed as required by localities. At first the ordinary 
three months' loan discount was all that was allowed as an ordinary banking 
transaction. That was afterwards extended to six months, but the whole matter 
was re-adjusted in 1923. It was considered the Federal Reserve was not meet- 
ing the necessary conditions of agriculture, because still its terms of loans were 
too short. I am speaking of the ordinary shor term credit, and not the mort- 
gage credit.. The agitation which led up to the establishment of the inter- 
mediate credit bank--which I will speak about now--in the United States, 
grew out of the belief that the Federal Reserve Board could not be made to 
satisfactorily function from the point of view of the farmers' operations. That 
is to say, the terms of loans were still too short. Up until 1923, six months 
was the limit; it has now been extended to nine months, and I think, because 
the Federal Reserve Board extended it to nine months, in all probability it will 
have an effect upon the growth of the intermediate credit banks. In March 
1923, the Government of the United States undertook to establish in co-relation 
with the Federal Land Bank, intermediate credit banks. They authorized 
the establishment of 12 intermediate credit banks at the same points where the 
Federal Land Banks were organized, and under the same administration. The 
business is kept entirely separate. These I2 banks were organized shortly 
after March, 1923. The Federal Government placed at their disposal $5.000.- 
000 each; that is to say, they took the authority to capitalize them at $5.000.- 
000 each. They arranged that they would have the right of issuing bonds up 
to 10 times their capital; in other words, they can ultimately loan up to 
$660,000,000--that is, the total group of banks. These were made from the 
,very beginning mutually supporting, though each did their business separately, 
but each is responsible for the debts of the others. The moneys made go into 
the Treasury of he United Sbates ultimately, after they have repaid their 
[Dr. H. M. Tory.] 

original indebtedness. They are allowed to issue bonds for terms not exceed- 
ing five years, depending upon tile length of time they make their loans. They 
are authorized to make their loans up to three years--from six months to three 
years; that is the longest term they are allowed to make a loan for. 
By Mr. Spencer: 
Q. What is the rate of interest, Dr. Tory, which is charged by the Govern- 
ment? A. The same rate as the Land Banks. 
By Mr. Hughes: 
Q. On mortgages?---A. Yes, up to six per cent. The security is the ordinary 
security. Money can be borrowed on farm produce--that is non-perishable 
produce--but here again they do not look to individuals. The individual must 
get his money from the local bank. This is only a rediscounting agency. A 
man must get his money through his ordinary bank, and there again the interest 
charge is fixed; it must not exceed one per cent above the rate fixed by the 
bank; in other words, not over seven per cent. The bank is allowed six per cent, 
and the re-discounting agency is allowed one per cent over that. The details 
are worked out in this report. 
By Mr. McMaster: 
Q. Where the bank charges more than six per cent is not the intermediate 
bank allowed to charge more? A. If the bank charges more than one-half 
per cent above that allowed by law--let me repeat that, a bank can loan money 
at six per cent, and the re-discounting agencies cannot loan it at more than 
seven per cent. If they loan it at more than seven and a half per cent the whole 
debt is cancelled. There is a tremendously rigid law in respect to that, regarding 
these particular organizations. They are under governmental control and have 
the benefit of government supervision. 
By Hon. Mr. Stevens: 
Q. It is not obligatory for the bank to loan money? A. No. May I 
repeat that again. There has never been any effort in this scheme to force 
anybody to loan money who did not want to loan it. The purpose has been 
to simplify and strengthen the credit of the borrowers so that money will flow 
normally into these channels. 
By Mr. Garland: 
Q. Will you repeat again for the purpose of clarifying, the statement you 
made with regard to the penalty imposed in regard to the rate of seven and a 
half per cent or more being charged?--A. Might I ask you, in order that there 
may be no mistake, to cancel my statement, and let me give it to you once 
again in exact form. I see there is a good deal of interest in that. It is printed 
in this document and I would not like to nuote the details from memory. 
Mr. Good>: Is it at the bottom of page xciv and the top of page xcv? 
The WITESS: That is not it, Mr. Good. The penalty is what I want to 
get at. 
Mr. McBImE: Page xcvii the middle of page xcvii. 
The WITESS: No, that is in regard to agricultural corporations. That is 
not the point. 
The CHAIRMAI: I think you have it at the top of page xcv. 
The WIWEss: Yes, that is it. Let me read it, and we will get it straight. 
"With regard to the rate of interest charged, definite restrictions 
are placed upon it. The maximum rate at which debentures may be 
[Dr. H. M. Tory.] 

By Mr. Sales: 
Q. Did you arrive at any conclusion, Dr. Tory, as to whether that vould 
be necessary in Canada?--A. The tax-free bonds? 
Q. Yes?---A. Conditions in Canada are entirely different. 
Q. In order to make money by this eourse?---A. I have not thought about 
it enough to give you an answer to that. I think it would make money flow 
into it, without question. They were able to sell in Baltimore $50,000,000, in 
two hours, I think it was. 
By the Chairmcn: 
Q. Are the issues of these 12 banks made separ:ttely or by a central 
organization issuing over the 12 district.?--A. They are made by the central 
organizations, but they bear the name of the di.trict for which they are issued. 
Q. And do they bear mortgages in that district alone?--A. I cannot answer 
that question directly, but I can in another way. The actual mortgages of 
all the banks are responsible to each other, but whether as a first e.all it is only 
against mortgages of the loeality--I wouht have to look that up. There is 
an indirect re.ponsibility, if not a dir(.et one. 
By Hon. Mr. Stevens: 
Q. The discounting of this paper by the.e intermediate banks is contingent 
upon the endorsement of the local private banks that offer it for diseount?--- 
A. Yes, it is contingent upon the endorsement, and a first charge. The Federal 
Intermediate Banks do not look to faro individual for the debt at, all; they look 
to the bank. But I found this in the northwestern staL( where the banking 
conditions are very bad, that a bank assures itself that the original borrower 
is responsible. In other words, while it looks to the smaller bank to pay the 
debt, it takes the precaution of being sure that the individual is wort.h tile money. 
I have set out on page xcix in diagrammatic form the relations in these Inter- 
mediate banks to the other banks of the systen and you will see that these 
institutions do not deal directly with the individual, but there are three methods 
of approach; he may pproach t,hrough the .mall bank, or a trust company whic'h 
takes responsibility for the loan, or through th National Agricultural Credit 
Association, for which authority under the Act. is given. These correspond to 
the small agricultural bauks for the purpose of dealing in agricultural paper. 
These banks must have $250.000 capital, fully paid up, before they are allowed 
to do business. These are given very, very special authority, but the point 
about it all the way through is that apart from tile ioint-stock banks where 
the individual who wants to borrow is permitted to deal with a private 
organization, he must deal with hi.s local organization. All the way through 
this organization, the machinery does not reach the individual except by this 
Q. And the conditions of the loan and the rates of interest arc the same as 
regards the farmer, whether he goes through the organization or his stock 
bank?---A. Yes. That is all arranged. Perhaps, Mr. Chairman. if any one 
has a question to put, I could answer it on this general organization, as I take 
it it is the American System which you ure most interested in. 
Moved by Mr. Coote, seconded by Mr. Garland. that the Committee do 
adjourn until 8.30 p.m., to-night. 

Motion agreed to. 

Witness retired. 

Committee adjourned. 

IDr. H. I. Tory.] 

"In spite of all that has bccn done to provide credit, great distress 
still prevails, especially in the western and northwestern states. As none 
of the larger organizations under Government auspices are permitted to 
deal directly with the individual, an effort is now being made to find a 
more direct way to help, especially in assisting those in the grain growing 
areas, who wish to develop diversified farming. A bill to grant $50,000,- 
000 for this purpose was recently defeated by the Senate of the United 
States. The President has appealed to the Chairman of a new financial 
organization known as the Agricultural Credit Corporation, capitalized 
at $10,000,000, to undertake the responsibility of individual loans, 
suggesting that under proper regulations, the War Finance Corporation 
wouldbe willing to make substantial advances for the purpose." 
In other words, the way is being sought at the moment in the United 
States to reach the people that we have been speaking about that are out of 
reach of the ordinary credit facilities based upon business security. 
By Mr. W. F. 1]laclcan: 
Q. What is the War Finance Corporation?--A. It was created first for the 
financing of the war, and in 1921 it was given the task of financing agriculture. 
There is a short paragraph on that in this report, on page xcviii, at the bottom. 
Q. It is still in existcnce?--A. It was to have gone out of existence on the 
28th February this year, but on account of this difficulty that we are nov speak- 
ing about, the time has now been extended to the 31st of December. 
By Mr. Sales: 
Q. Why that sentence "especially in assisting those in the grain growing 
areas who wish to develop diversified farming."---A. It is specifically mentioned 
because of the effort in Congress to pass Acts to help those who wish to develop 
diversified farming. 
Q. Do you think that would solve the situation?---A. I am coming to what 
the United States people are trying to do. They are not lending znoney to grain 
growers only, they are lending to grain growers who are willing to go into diver- 
sified farming. They are the only people who are getting money now. 
By the Chairman: 
Q. Would it be right to say that they object to advancing money unless 
guaranteed repayment and that they consider the wheat farmers do not offer 
at the present time that security?--A. That is exactly the situation. 
By Mr. Sales: 
Q. And it is the price of the other products which offer the security? A. All 
the persons who are making recommendations to the farmer, and these recom- 
mendations to the Government are recommending it on that basis. 
By Mr. W. F. Maclcan: 
Q. And they have knowledge of the farming conditions there?--A. Yes. 
May I say that Dr. Coulter, the Head of the Agricultural College at North 
Dakota, who is probably one of the most competent authorities in America-- 
I know of no man who is more competent to speak about this subject both 
from a point of view of services performed, and from experience--says that 
this proposal of $50.000.000 was to be used in an attempt to get the farmers 
into diversified farming. 
By Mr. Coote: 
Q. That was defeated in the Senate? A. Yes. 
[Dr. It. M. Tory.] 

could not get money; they were not loaning a dollar because they had not the 
kind of security to offer. 
Q. It cannot relieve farmers who have no security to offer?---A. No. 
Q. It can relieve farmers who have the security, by providing money at 
a cheaper rate of interest.hA. Yes. 
By Mr. Maclcan: 
Q. What would you do with the Canadian farmer?--A. I will come to that 
later, if you do not mind. 
By Mr. Shaw: 
Q. Is not the scheme of this undertaking by the United States to have 
made available for the farmer his own credit?--A. Yes. 
Q. Is that not the underlying purpose of it?--A. Yes; it really starts 
out to repeat what was done in Europe, organize the security of the farmer so 
that it would become attractive. They do not make a beggar of 'hi,n; he is 
not getting money for nothing, but they are giving better security. 
By Mr. Coote: 
Q. You have used the terms here several times, "long term credit" and 
"short term credit?"hA. Yes. 
Q. What term of years would you call " short term " as distinguished from 
"long term?"--A. In the first and second chapter of my report I tried to define 
these words, because they are used very vaguely in most literature. Long 
term credit is mortgage credit, five years and upwards, and as it is worked out 
in all the systems of which we have been speaking, it has been worked out 
as mortgage credit on a mortgage bond basis for raising money. 
By Hon. Mr. Stevens: 
Q. Amortization?--A. Yes, amortization. Europe uses the words " s'hort 
term credit" in every case to cover everything but the mortgage. 
By Mr. Coote: 
Q. All but the farm mortgage?--A. Yes. In the United States and Canada 
you are using the term "short term credit" to represent ordinary banking 
operations, and intermediate loans fom six months to three years. 
By the Chairman: 
Q. Are they all secured by mortgages as well? A. In France you may 
get a short term credit secured by mortgage, but generally speaking you cannot 
secure it by a mortgage at the start. 
By Mr. Sales: 
Q. That would be a chattel mortgage?--A. Yes, against crop or warehouse 
receipts, or anything that is secure, non-perishable. Short term credit as we 
use it generally means both short term and intermediate credit. The United 
States is the only place where the official term "Intermediate credit" is used 
so far as I know. 
By Mr. Coote: 
Q. It is my opinion that we have never really had a system of long term 
credits in Canada, and I want your opinion on that, because I think it is a fact 
that the great bulk of our mortgages are given for a term not exceeding five 
years. Do you think that is a long enough term for the farmer to be able to 
pay it off?--A. I tried this morning to make it clear that where a farm is 
bought at the real price of land as it is to-day, no man can pay it off in five 
years unless he has other sources of income. 
[Dr. :H. M. Tory.] 


14-15 GEORGE V, A. 1924 

By Mr. Sales: 
Q. In fact, you suggested 30 years?--A. Yes. In Britain, for instance, 
the whole scheme is on a 60 year basis. 
By Mr. Coote: 
Q. You would have no hesitation in saying that we do need a longer 
term?---A. I say that definitely. 
Q. And that wc need an amortized loan?--A. Yes. 
Q. And that they are not available in Canada to-day-- 
Mr. McKAY: They are in Ontario. 
The WTNESS: They are available only through local Government 
organizations, and I believe one or two insurance companies in the United 
States are doing that, but they are only available in Canada through the local 
Government organizations. 
By Mr. Garland: 
Q. In every country in which this long term amortization plan of credit 
has been carried out, there has been an immediate and general reduction in 
interest rates; is that true?---A. I would not say an immediate reduction; I 
would say that as the business has grown in proportion to the total business of 
the country, it has certainly brought interest rates down. 
Q. But as a result of the establishment of these organizations, there has 
been an appreciable reduction in interest?--A. There has been a regulation of 
interest all over the :North American continent. I would not like to say 
absolutely that, for example, in the eastern States interest rates may not be 
much lower. In the western States they are enormously lower. 
Q. In your opinion, would the establishment of some similar organization in 
Canada reduce the interest rates to the farmer borrowers in Canada?--A. Just 
as soon as enough money at lower rates of interest is loaned, to be effective. 
By Mr. McKay: 
Q. Do you think that could equalize interest rates all over Canada or the 
United States? A. I think I see the point you arc getting at. I-Iere is what is 
happening in the United States. Any big mortgage company going into the 
western States finds itself in effective competition with this farm loan scheme. 
One hundred and four million dollars loaned out in St. Paul is a pretty effective 
competition in that district. :Now, what are they doing? They are actually 
lending money in some districts cheaper than the Farm Loan Board, but they 
are selecting their districts; they are not taking the loans that are difficult. 
There is the danger of the situation there as I see it, that the big mortgage 
companies will only do business with the thoroughly competent and tried people; 
they are selecting the good districts, and they will cut out a whole district 
and the Farm Loan Board will have to take the choice of what the company 
leaves in that particular district. 
By Mr. Maclean: 
Q. Are they not trying to pulverize the source of credit so as to make it 
common all over?--A. You mean the Farm Loan Board? 
Q. Yes.--A. There is no doubt about that; the whole scheme is designed to 
give credit all over the country at a common rate of interest, and in order 
to do that they are selling common bonds, and the whole thing is a unit. That 
is like any company going out covering the whole of the country. 
By Mr. Sales: 
Q. Do you think the newly settled parts of the country have anything 
to do with the success of this business?--A. :No, I would be inclined to say 
[Dr. H. M. Tory.] 

this, that the new parts of the country, where credit, the value of land is newly 
established, will not get as much benefit from it as the parts that are com- 
fortably established. I would be inclined to say that the well-off, strong 
farmers will not do business with this organization because they do not want to 
go into a co-operative scheme. It is your moderate farmer who will put his into it, and the hope of success of the whole thing is in what we call 
the intermediate farmer, the man corresponding to the skilled labourer, as 
distinguished from the merchant farmer in the one hand, and the day labourer 
on the other. 
By Mr. McKay: 
Q. You do not hope to devise a scheme that will take in every farmer?-- 
A. I do not think it is possible to devise a scheme to take in every farmer, unless 
you give away money. 
Q. I see in the Ontario scheme, 1234 applications were made by farmers 
last year, iand 953 of 'them were considered favourably, while 281 were 
rejected?--A. Yes. 
Q. That is the whole point; there will always be the rejected ones?-- 
A. Yes, and the rejected ones always make trouble for the others. 
By Mr. Ward: 
Q. How many provinces have adopted this scheme, or a scheme of this 
sort?--A. Starting in the West, British Columbia, Alberta, Saskatchewan, Mani- 
toba, Ontario,--Quebec has not, Nova Scotia has, New Brunswick lms. The two 
left are Prince Edward Island and Quebec. 
By Mr. Cootc: 
Q. Has Alberta loaned any money on long term loans?--A. Alberta has had 
an Act on the books since I think 1917. It was never brought into operation. 
This year a new Act was passed that is supposed to have been brought into 
operation, but it is not in operation yet. 
By the Chairman: 
Q. Is the legislation in the western provinces pretty similar?--A. Very 
much the same. 
By Mr. Coote: 
Q. You are fairly familiar, I think, with this question of agricultural 
credits the world over, and the question of agricultural conditions. Do you 
think the Canadian farmer can continue to compete in the markets of the 
world if he is compelled to pay from eight per cent to nine per cent interest 
on his long term loans 
Mr. SALES: And ten per cent. 
By .lr. Coote: 
Q. Yes, ten per cent, while farmers in these other countries are getting it 
at five per cent and five and a half per cent? A. I think I say something 
in this report about that. 
The CHAIRMAN: We are going to the fifth section of this report, which 
covers the ground of rural credits in the Dominion of Canada. 
The WITNESS: Might I say just one further word. The other thing I 
wanted to call your attention to is this; I emphasized this morning the two 
modes of long term credit. That is, the organization of borrowers and what 
we might call the organization of lenders, who controlled the rate of interest. 
[Dr. H. M. Tory.] 

By Mr. Garland: 
Q. Is it not true that in eountries where any such terms were made, there 
exists two government systems. A. I do not think I had started on that when 
I was interrupted. 
The CHAm.: I would suggest for the time being, gentlemen, that 
Doetor Tory be allowed to eontinue with his statement. 
The WITgESS: In Great Britain I say they have adopted that prineiple 
so far as they are adopting the principle of loans at all. They are also stimu- 
lating the loeal associations whieh handle the short term eredits. Broadly, 
that is what they are doing. In all the other British Dominions, South Africa, 
New Zealand and Australia, they are making the loans directly from the 
Treasury. That is to say, there are Boards organized, but the money is raised 
by the Treasury and handed to the Boards. As far as all our organizations in 
Canada are eoneerned, that is in all these provinees the money is raised direetly 
by the Treasury and handed over to an offieer of the Board, so the prineiple 
of loaning money directly from Government. funds has been established in the 
major British Dominions. It has also been established in all the States of the 
Union doing business as States. Minnesota just passed its Farm Loan Act. last 
year, and in the state of Minnesota, the Treasury is raising the money direetly 
and giving it to the administrative board to loan. This is state money that is 
being loaned in all the States. Altogether, about one hundred million dollars 
has been loaned by the States of the Union; there are about 20 of them, I 
think, doing that now on the basis of direet state loans. 
By Mr. Maclean: 
Q. At. the one rate of interest?--A. To. The rates of interest vary with the 
states; they have to raise the money and pay whatever they can get it for. 
The State of South Dakota has approximately forty million dollars on that 
basis now. I just wanted to make it. elear that there was a group apart from 
the other two we were emphasizing this morning, a group of countries finaneing 
it by direet state loans. Tow, we eome to the position in Canada. 
By the Chairman: 
Q. If you are leaving this subject., would you tell the eommittee if you see 
any particular advantage in the State raising direetly the funds and advancing 
them to the Board? A. The only advantage that. I can see is the advantage 
of eheaper rates of interest in raising the money. That. is, the State can usually 
get the money cheaper than any other institution. That. is not. true where 
farm loan sehemes are well established, as in Europe, where the money is 
raised as eheaply by an independent, orgaization whose credit, is established. 
That. is the only advantage. I do not. hesitate to say that the outstanding disad- 
vantage is the diffieulty and danger of a contract of the government, and the 
individual, eoming and borrowing direetly from the government funds. There is 
no question about the danger of that. 
By Mr. Shaw: 
Q. Is it not true that in order to get money at a reasonable rate of interest 
you have to have a long term loan?--A. Yes. 
Q. What would be the effect of our Interest Act, one provision of which 
says the borrower can, at the expiration vf five years, pay off his mortgage 
upon payment of a bonus of three months' interest? Would that have to be 
repealed?--A. :No. Under the established farm loan scheme of the United 
States, after five years any man can pay back his mortgage if he wants to. 
[Dr. t. M. Tory.] 

Q. Are not the fire and life insurance companies lending on farms?---A. 
The western life insurance companies, whatever their operations may be, will 
give no statistics. I could get no statistics of their mortgage business in Canada 
from any of the companies doing business. 
By Mr. Sales: 
Q. Did they refuse to give you any information?---A. They say there is 
no statistical information to give. I ried the Statistical Bureau and they had 
no information to give. 
By Mr. Coote: 
Q. If these life insurance companies were able to invest all their money 
in bonds of the Farm Loan Board drawing five per cent interest, without any 
expense to ,them for collecting, do you not think they would be earning a very 
good rate of interest on the money they had to invest? A. I am qui{ con- 
fident that once the security of any new organization was firmly established, 
there would be no trouble in selling bonds at five and a half or six per cent. 
Whether you could sell at five per cent is another matter. 
Q. These life insurance companies have a good deal of money invested 
in bonds drawing five per cent interest?---A. I should think that an enormous 
amount of noney is im'ested in Government bonds in the United States and in 
Q. I think that if you would look into some of our life insurance companies 
you would find that they have much money invested in farms on which they 
have foreelosed.---A. I emphasize in this report--on page exxiii--this fact: This 
statement was made to me by the mortgage companies that the restric- 
tions placed in western Canada on mortgages and priorities has increased the 
rate of interest from one to tvo per cent. That is to say, if those restrictions 
were removed, they could do their business at at least one per cent cheaper 
than they are doing it now; some said two per cent cheaper, i make the state- 
ment here that I did not find anybody who would promise me that if those 
restrictions were removed they would start lev.ding at a cheaper rate of interest. 
By Mr. Garland: 
Q. Is it not true that the Govermnent of those provinces where these 
accusations were made have denied that there wcre sueh priorities existing?-- 
A. There is no question that it is a matter of very keen dispute. I say this 
that I have not yet found any lender who is willing to pin himself definitely 
to an agreement that if the restrictions were removed the price of mortgages 
would be reduced. I say this: 
"My judgment is, this is a matter of such serious importance that 
a conference between representatives of the mortgage organizations of 
Canada and the governments responsible for the legal limitations com- 
plained of and the lenders of the farmers' organizations in the country 
should be held to discuss the whole matter to see whether some scheme 
could not be devised that would remove the suspicion and doubt that have 
arisen in connection with it." 
There is no doubt that there is suspicion in the minds of the western peopl 
with regard to the mortgage companies. 
Bg Mr. Sales: 
Q. Is it not a fact that before we had these localities brought in, they 
charged ]ust as much for our money years ago as they charge now?--A. With 
that fact which I have stated before you, you can form your own judgment. 
[Dr. H. hi. Tory.] 

14-15 GEORGE V, A. 1924 
By Mr. Gardiner: 
Q. Have you made any inquiries as to the rates which were in existence 
prior to this restrictive legislation going into force?A. I could not find that 
there had been a very great variation in interest charges. Now may I lust 
say a few words about the Canadian situation. Three times an effort has been 
made in the Parliament of Canada to pass an Act, each time with the same 
title, to establish in this country on a national basis the principle of co-operation 
in the purchase and supply of farm products in small banking organizations. 
Each time the bill was defeated. The last time it came before the Canadian 
Parliament in 1914, the bill was defeated. No further effort has been made in 
that direction recently, to establish anything in the way of a national organiza- 
tion for Canada. In the meantime, co-operation has been established, as I have 
already stated, in all the provinces. Co-operation for short term loans, and 
some olan by means of Government assistance for long term loans has been 
adopted in all the provinces, except Quebec and Prince Edward Island. In the 
province of Quebec, beginning in 1900, there is a small rural credit bank scheme 
of the type established in Germany and Italy. I think it is about as remarkable 
a piece of financing, the development of the small rural bank for the assistance 
of the rural population, as we have had in this country. It has been developed 
without any assistance, even without Government supervision, if my memory 
serves me rightly. 
The CHAIRMAN: For a couple of years there have been regtflations. 
WwNEss: It has been developed in a very renmrkable way. Last year 
they did business representing a turn-over of $11,000,000 in small loans to the 
farmers and the workmen in the various communities. It is the oldest and best 
established system of short term credits that we have in Canada, and it has 
been developed without assistance from anybody. The ,long term credit 
organizations of the provinces to-day are practically not functioning. They 
have brought a new one into existence in Nova Scotia; it is on the statute books, 
but it has not been developed and its machine, has not been set in motion. 
The one in Manitoba has been'working for some time. I think they have 
approximately $5,000,000 out; I am trusting to my memory in giving that figtre. 
They have $9,000,000, out in Saskatchewan, but we have not any out on the 
long term scheme in Alberta. In British Columbia there are about $2,000,000 
out. They have two Acts there quite varied in their application. I think they 
have about $2,000,000 out on the long term basis in British Columbia. Then we 
come to the short term credits. In Nova Scotia I think we have about $150,- 
000 out under their short term scheme. Manitoba has something like $3.000,000 
out. Saskatchewan has not a short term scheme, and Alberta has approximately 
$800,000 out, in short term loans through the co-operative associations. They 
have a certain amount out, $500,000 or something like that in British Columbia. 
That is the situation as it stands in the provinces. As I said before, long 
term credits in Canada, so far as the local governments are concerned, apart 
from Ontario, are not functioning at the moment because of the difficulties of 
getting money. I would like to refer you to he last paragraph of my report, 
and then I shall be open to questioning. On page cxxi you will find in broad 
outline the various schemes in operation, and at the top of page cxxiv you will 
see my judgment on this matter. 
"Further, there is without question, a considerable number of farmers 
in Canada, who, following the urgent advice given during the war and at 
the close of the war to continue production, find themselves, due to the 
heavy deflation, in the same position that farmers found themselves in 
England and the United States, and for whom some plan of amortization 
[Dr. H. M. Tory.] 



of loans is bsolutely necessary, if they are to be able to continue on the 
land. This demand is being met to-day only in a very limited degree. It 
is very doubtful whether the provinces alone can continue to develop 
long term mortgage business without taking risks greater than they should 
take in connection with their own financing. 
"Now, while I am firmly of the opinion expressed by Sir Horace 
Plunkett and already quoted, that agriculture must be a self supporting 
industry, I believe with equal confidence that there is a need in Canada 
for some organization co-ordinating the credit which the farmer has to 
offer in such a way as to make it more attractive to the man who wishes 
to loan his money at a reasonable rate of interest with proper security. 
Every country in the civilized world has ultimately been compelled to 
take such a step. When it. is remembered that two per cent, under the 
ordinary amortization scheme, will amortize a farm mortgage in 20 years, 
therefore, a reduction of two per cent in interest is equivalent in 35 
years to the capital debt, the significance of the foregoing statement will 
be apparent." 
I have not suggested definitely what the form of organization should be 
but I think I have expressed a firm judaent as to the wisdom of something 
being done. 
By Mr. W. F. Maclean: 
Q. You would not say whether it should be Federal? A. I think I have 
strongly hinted that it should be Federal in form if the provinces cannot 
finance it. :Now, turn to the last page, page cxxvi. (Reads) : 
"One word in conclusion--. It ought to be clear to anybody that 
Canada is slowly passing through the stage in her agricultural develop- 
ment that the United States was passing through some years ago, vi,., 
the best lands of the country have been taken up, wealth accumulating 
from the rise in land prices will, in a large measure cease, and land 
mortgages based on growing prices will be harder to carry. I have no 
doubt that competition from the United States sa far as cereals are con- 
cerned will grow less and that, in spite of high tariffs, the United States 
must buy from us eventually, but competition from a revived Europe 
and other parts of the world will increase. If we desire to have 
Canadian agriculture maintain its place in world competition in the 
future, the time to begin to plan for the rational administration both 
of its fingnces and its scientific development is the present." 
That is my conclusion, and then I make this suggestion. (Reads): 
"Should the Government, deem it wise, during the present, session 
of Parliament to take action with regard to the establishment of a plan 
for the development of long term and short term credit, I would 
respectfully urge that an intensive study of this problem be continued. 
If it is considered wiser to wait for further maturity of opinion on the 
subject, then I would respectfully suggest that, as the period given for 
the preparation of this report has hardly been sufficient to study the 
problem from the point of view of the communities seeking benefit, that 
I be permitted to continue the study of the problem in the interim." 
Now, gentlemen, may I say just one word in conclusion. My position 
in regard to the matter,I have thought it over very carefully--is this: If 
there is one thing that we in Canada should avoid, it is the duplication of 
machinery. I do not believe that. we can start duplicating provincial machinery 
[Dr. H. hi. Tory.] 

14-15 GEORGE V, A. 1924 
without increasing the cost ultimately of loans to the farmer, in other words, 
if you establish expensive machinery, you are going to make business expensive; 
a.nd I think they are making a very great blunder in the United States, in 
Minesota, in duplicating the Federal system. The thing that was in my mind 
when I wrote that statement was this: There should be co-ordination of effor 
between the provinces and the Federal Government. Whether it would be 
wiser to use the present organized machinery of the local governments, wherever 
they desire to use it, and have the Federal Government become responsible in 
assisting in the advancement of this scheme---that is one thing. ] d not know 
how far that, is possible, constituted as we are, Anglo-Saxon people, particularly 
in the West. But ] am firmly convinced that the time to study this thing to a 
conclusion is now. Do not let us go too fast, but let us be sure that we get 
he right scheme, and if it is necessary to have some help, it should be found 
t once. ] know that some of you feel very strongly on the matter. 1V[y 
judgment is that it should be done under some comprehensive arrangemen 
pending a final organization or permanent scheme; ] would certainly be 
opposed and would give my judgment against any scheme that would put 
the Federal Government in competition with the local governments, it must 
be unified, and if the present difficulties could be overcome temporarily to 
give us  little more time, ] would gladly devote much more hard work  
seeing whether ve could not bring together something that would stand the 
test of time by doing the right thing. That is my feeling about the matter. 
By Mr. Sales: 
Q. I would like you to dcal with that paragraph which was referred to 
on page xliv.--A. In answer to that I would say that I do not think you can 
have a short term loan scheme covering Canada wthout some discounting 
Q. Have you got the paragraph I am referring to? It is on page xliv. 
]Vlr. Kellner raised the question as to whether the provincial governments 
should have the same privileges under the Finance Act of 1914 of depositing 
their securities, those provinces which desire to obtain money for their rural 
credit system?--A. I think I have answered that specifically. If you ask 
me the definite question whether discounting facilities should be given by the 
Dominion Government to the provinces I am not prepared to give an answer; 
but if you ask me whether there should be the same discounting agency that 
would be a machinery for rediscounting, I would say yes. 
By Mr. Good: 
Q. Have you given any consideration to this proposition as an emergency 
measure say for the year? A. No, I have not. What I think nfight be done is 
that some emergency legislation might be passed giving some comprehensive 
authority to meet certain difficulties at the moment, taking time to work it out 
in detail. I am not saying that I see it as it should come out in the end; I would 
like to study the matter further. 
Hon. Mr. Swws: Personally, I have profited very much by the discus- 
sion of this matter by Dr. Tory, and I would like to ask whether it is possible 
to have a further opportunity of studying with Dr. Tory this question. There 
are some rather important questions that I would like to ask him, and as it is 
now getting late I would not care to discuss them in a casual way. 
By Mr. Maclean: 
Q. When do you expect an answer from the Government in regard to this 
report?--A. I am not expecting an answer from the Government at all. The 
[Dr. H. M. Tory.] 

14-'!5 GEORGE V, A. 1924 
By Mr. Shaw: 
Q. I would like to know something about your idea of emergency legislation 
--how should it be undertaken? Supposing we could not form a definite plan? 
--A. If you propose to meet on Friday at four o'clock to discuss this matter with 
me, I would like to think it over between now and Friday. I think that that is 
a very big question. 
]VIr. GOOD: I think Dr. Tory, if you will undertake to put your mind on 
this problem and suggest something on Friday, it would be very valuable to us. 
By Mr. Coote: 
Q. I would like to ask if you think it is desirable that this lower interest 
rate could be made favourable to our farmers as soon as possible?--A. Without 
Q. Do you think it is possible to do so without undue risk?uA. I would 
be inclined to make this answer, although it is not a final answer; that it is not 
possible to do it without farmers' organizations backing it themselves. I believe 
firmly in the organization of the farmers themselves, if for nothing else than 
for educational purposes, backing their own credit. In every country in the 
world that had been the basis of compounding or co-ordinating the credit of 
the group behind the individual, and giving security to remove doubt as to 
security, and if you do that, the interest charges will come down as automatic- 
ally as clockwork. 
Q. If you had a credit organization similar to those in the United States, 
which borrow from the Federal Farm Loan Board, would we then be in a 
position :o loan money to a certain percentage of our farmers without undue 
risk?---A. If you can ra.ise the money on mortgage bonds at five per cent, 
you can afford to lend it at six or six and one-half per cent. One and one-half 
per cent will carry all the charges. 
Q. I would like your opinion, if you can give it, as to whether a certain 
percentage of our western farmers are in a position where it would be safe 
to loan them this money?---A. I think there is no doubt about that. 
Q. You think the$ have sufficient security? A. I certainly do. 
By the Chairman: 
Q. You have no idea of what percentage it would be safe to loan money 
to?--A. :No. Mr. Chairman, I have not. 
Q. May I draw attention to Prof. Swanson's statement lash year?-- 
A. Yes, I have read it, but I do not recall it now. 
Q. Would you read it again, and particularly at pages 787 and 788 of last 
year's report, and tell us at the next meeting what you think of it?--A. Yes, 
I will be glad to. 
By Mr. Coote: 
Q. I think you said something, Doctor, about there being a danger of 
going too fast in initiating some legislation in Canada?--A. Yes. 
Q. Which do you consider would be the greatest danger, going too fast 
or going too slow? A. The significance of my remarks about going too fast 
really was this; I said in this report that the time to prepare for a proper 
financial and scientific administration of agriculture is now. I mean we should 
take time now o do as well as we can--or if I might use the expression, as right 
as we can do it. 
By Mr. Ward: 
Q. That would not prevent emergency legislation? A. No. We are doing 
things not so much for the present as for the future, probably for 100 years, 
[Dr. H. M. Tory.] 

14-15 GEORGE V, A. 1924 
A. I told you this morning that in Germany 14 per cent of the loans have 
been made by these organizations, and they practically control the rate of 
interest on mortgages. In France, the Credit Foncier has a monopoly on the 
mortgage business, with a fixed rate of interest. Nobody else does business with 
the farmers excepting the Grcdit Foncicr. In the United States they have 
loaned approximately 16 per cent of the total--that is, 16 per cent is in the 
hands of the Farm Loan Board. There is no doubt that in certain localities it 
is decidely affecting the interest to-day. 
By Mr. Good: 
Q. Would you say 20 or 30 per cent would be effective? A. I would say 
20 per cent would be effective, but you have to face this fact, and you might 
as well face all of the facts, that the competitors you will meet in the shape 
of loan companies will take this business into the best areas of the country and 
leave the other areas to the Farm Loan Board. 
By Mr. Spencer: 
Q. Have the mortgage companies already gone on record against the 
starting of rural credit?--A. I have no doubt they vould object, because they 
are against it everywhere. 
By Mr. Coote: 
Q. How many years behind the United Sttes do you think we are in 
Canada now, as regards the question of long-term credits? A. Just since 1916. 
Q. And you can not wonder then that some of our farmers in the west 
are a little bit discouraged at the interest which this Government shows in their 
behalf?--A. That is a political question I would not want to answer. 
Q. I did not intend it in a political sense at all. Perhaps I should not 
have said "this Government", I should have said the Parliament at Ottawa? A. 
I think it is remarkable that the Parliament at Ottawa has not passed an 
act long since, a national act, for co-operation; I could never see why that was 
defeated in 1914. 
Mr. GooD: I have made some investigation into that this session. 
By the Chairman: 
Q. What is the question? 
By Mr. Coote: 
Q. Do you not think that there is a very great danger to our farming in- 
dustry from waiting too long to introduce something in the nature of long tern, 
rural credits?--A. I am absolutely confident we have to come to the scheme oi 
long term rural credits if we are going to stand in competition with the world. 
I am certain of that. You could answer the question better than I can be- 
cause you know the country better than I do, whether it is a pressing need or 
not. I have no doubt that a great many people will immediately receive 
the )enefit of long term credits, but whether they can wait six months or a 
year, I do not know. 
Q. Would it be much easier to introduce the proper machinery for long 
term credits than for short term crcdits?--A. I think the money is more easily 
obtained, yes. 
Q: And that is the place to begin, if a start is to be madc?--A. In Doctor 
MacGibbon's report, he reported that the farmers were not so anxious about 
the long term credits as about the short terms. That was in 1923. His state- 
ment was that the mortgage business was not as pressing as the short term 
business, that this three months banking problem was a serious difficulty. 
[:Dr. I-I. M. Tory.] 

14-15 GEORGE V, A. 1924 
with a view to recommending such amendments to the Act as will better protect 
the interests of depositors generally, and prevent similar occurrences in the 
future. The suggestion was made to the Committee that the Government should 
create a system of bank inspection or bank examination, separate and distinct 
from the bank audit actually in force, under Government control by officers 
appointed by the Crown. We would like to have your views as to how the 
amendments made to the Bank Act last year now function, and what your views 
are as to the creation of a Government inspection bureau separate and distinct 
from the audit actually in force.--A. I can best give my views by reading what 
I stated at the last annual meeting of our shareholders. It was this:- 
" In some quarters there is a demand for Government inspection. 
Speaking for this bank, I desire to say that while we have a highly 
developed system of internal inspection, and in addition a thorough audit 
by efficient and experienced public auditors appointed by the share- 
holders, we shall be only too glad to submit to any further reasonable 
form of audit or inspection required, be it Government or otherwise, pro- 
vided such inspection be efficient." 
That is the one thing we demand, efficient inspection. 
By blv. W. F. Maclcan: 
Q. Your Association has not made any declaration along the lines of that 
statement?--A. Our Association has not, but I think I am safe in saying that 
perhaps a majority of the Canadian bankers have expressed themselves in this 
way. Several have not, but on the other hand, I think the majority have. 
By Mr. Euler: 
Q. They have not taken any action as an Association?--A. No. 
By Mr. Good: 
Q. What was the attitude of the Bankers' Association lastyear when this 
question was before the Committee, if you know and can answer?--A. That 
would appear on the record of the meetings last year, Mr. Good. I do not know. 
Q. The proposal was made last year and voted down, and I want to know 
what the attitude of the Canadian Bankers was last year in regard to this pro- 
posal to which they have now given their qualified assent?--A. I do not know, 
Mr. Good, that the Canadian Bankers, as a whole, came to any conclusion. I 
think, if I remember correctly, that certain bankers expressed themselves as 
being unfavourable to Government inspection; whether or not any expressed 
themselves as being favourable, I do not know. 
Q. In your knowledge, has there been any change of attitude on the part 
of leading Canadian bankers on this. question since last year?--A. Perhaps 
there is. As a matter of fact, while bankers may not consider Government 
inspection a necessity, at the same time, bankers feel that if the public demand 
Government inspection there is no reason why the public should not have it, 
so long as it is efficient. 
Q. Might it be the means of restoring confidence?--A. That is possible. 
Q. With regard to Section 56 (a) which gives the Minister the power to 
make any special examination at any time, what was your iudgment last year 
towards that section, which I believe Mr. Fielding claimed to be sufficient? 
--A. You mean my personal attitude.7 
Q. Yes.A. I saw no objection to it. 
Q. Did you at that time consider it to be cffective?---A. If I considered 
it at all. I would say so, yes. 
Q. Do you consider it to be effective now?--A. You mean, if the Finance 
Minister-- :'. r] 
[Mr. C. E. Neill.] 

Q. I-will read the section if you wish. (Reads). 
" The Minister may direct and require any auditor appointed under 
the next precedig section of the Act, or any other auditor whom he may 
select, to examine and inquire specially into any of the affairs or busi- 
ness of the bank." 
And so on. It is the provision which enables the Minister to make a special 
examination of the affairs of any particular bank. 
Mr. SH.W: That was passed in 1913. 
By Mr. Good: 
Q. Yes, it is not a new section, but the claim was made last year that it 
was sufficient; and I want to know what your attitude was last year and what 
it is this year in respect to that particular provision.A. My attitude this 
year is this: If this Committee does not think that that is scient., I would 
be prepared to go a step further and satisfy the Committee. 
Q. Do you consider that it can be reasonably effective in any case? Per- 
haps you do not understand my point, but if you have been reading the 
reports of the Home Bank investigation and the reports of this Committee, 
you will have seen flint a number of people, including the present Act.- 
mg Minister of Finance, and Sir Thomas Whi and a number oi 
others, have expressed the view that, unless under very severe pres- 
sure, no Minister would undertake a special examination of a bank because 
of the suspicion which it would throw upon that particular bank; that, there- 
fore, in view of his reluctance to throw suspicion upon any institution which 
might be entirely solvent, he would not make a special examination. I think 
that was the case when the affairs of the Home Bank were brought to the 
attention of.Sir Thomas White a few years ago. The question I now raise is, 
whether or not under the circumstances that section was effective or operative 
or whether it could be expected to be operative?A. I can see no reason why it 
cannot be made effective. I can see no reason why the Minister could not send 
an officer to a bank at any time, if he thinks it advisable to do so. 
Q. You do not think that such action on the part of the Minister would 
cast suspicion upon any bank specially selected for examination?. It might; 
I cannot say it would not. It might, but that would be for the Minister to 
decide under the circumstances what the best course would be to pursue. 
Q. Suppose, as General Manager of the Royal Bank, that the Minister 
should suddenly send an auditor or staff into your Bank to make a special 
examination, it would be difficult possibly to keep that from becoming public; 
would you make any protest against such an action?A. We would not like 
it,but we would expect that the Minister would not do that unless there was 
good cause, and if there was good cause, we should not object. 
Q. How would you know what was sufficient cause until he had made the 
examinatiqn?A. Information that might be conveyed to him. 
Q. By whom?A. Any one at all whom he considered reliable. 
Q. I understand then. Mr. Neill, that you hesitate somewhat to endorse 
the statement made by Mr. Robb and by Sir Thomas White and a number 
of others with regard to the ineffectiveness of that section. I do not wish 
to prolong the discussion on this, but you are not prepared to endorse what they 
have said?A. I do not know exactly what they have said. 
Q. I have not the records with me, buA. They thought that that sec- 
tion was ineffective? 
Q. Mr. Robb stated here in this room the other day that he would feel 
very reluctant indeed to pick upon any paicular bank and make an examina- 
rMr. C. E. Ne.] 
1 29 



By Mr. Good: 
Q. I vas referring to the buildings, not to the site values.---A. We have 
bought a number of bank properties, and it has been our experience that we 
never got as much out of the buildings as wc expected to. 
Q. Have you taken cognizan.ce of the drift of deposits during the last few 
months since the failure of the Home Bank, away from certain of the smaller 
Canadian banks?--A. I have, but do you think, Mr. Good, it is wise for us to 
discuss that? 

Discussion followed. 

By Mr. Good: 
Q. I shall omit some of my questions, but refer to one which has to do 
with the percentage of the net profits paid up by various banks during the last 
year or so. hly opinion is that in one of the States of the Union with resources 
of $593,000,000, the percentage of shareholders' profits was 1-3 per cent, and 
the percentage of the profits paid in dividends -53. In three banks in Australia 
the shareholders' profits vere 1.34 per cent, and the percentage of them paid 
out in dividends 69. The Bank of Montreal--I cannot give the resources there, 
but it is immaterial--the shareholders' profits wcre .56. That is, less than one- 
half; with 97 per cent of that paid out in dividends. In the Royal Bank--Mr. 
Neill ought to know something about this--.62 per cent, with 96 per cent paid 
out in dividends. The Bank of Commerce, .62 per cent, with 93 per cent paid 
out in dividends. I want to ask if you have looked into these matters, and if you 
have any opinion to give to the Committee as to whether these figures are right, 
and if something should not be done, and if that does not indicate a situation 
which requires some remedy. If my information is correct, this comparison 
shows that the situation in Canada is not as good--A. It shows the Canadian 
banks are not making a large profit, which is absolutely the case. 
Q. Why should they be paying out all of the net profits in dividends?--A. 
because it makes provision for their debts, and after making a provision for 
them, and all necessary appropriations, "there is no need why they should not 
give to the shareholders--having built their reserves up almost equal to capital-- 
Q. The only question I wish to raise is a general question. I am not satisfied 
to let these matters proceed, but after what has happened, I think that'as 
representatives of the public they should be informed as to what the facts are, 
but they have no means of knowing. Mr. Neill does know about a lot of these 
matters, and I think this Committee ought to know from somebody what the 
situation is, so that we may take the proper remedies; otherwise I see a repeti- 
tion of what has happened in the last few years. 

By Mr. Ladner: 
Q. Mr. Good covered a part of this, but I want to ask one question in 
regard to double liability. Is double liability considered as an asset in any of 
the bank statements?---A. :No. 
Q. You have not information regarding the amounts collected in double 
liability in connection with bank failures during the past three years?--A. :No. 
Q. In your opinion does the double liability in Canada act as a deterrent 
to investors in the capital of bank shares?--A. Yes. 
Q. Do you think it is in the interest of the public and the banking business 
to repeal that clause? A. :No. 
.Q. Well, in experience, little has been collected, as I understand it, from the 
double liability clause in the case of banks which have failed. Strong banks, 
of course, do not fail. That is correct, is it not?---A. Yes. 
[Mr. (3. :E. Neill.] 

14-15 GEORGE V, A. 1924 
Q. You have told us that it does act as a deterrent to the investment of 
capital. Where is the justice or wisdom of saddlin really innocent shareholders 
with a double liability if it is neither an sset of the bank and at the same time 
is a deterrent to the investment of capital? A. It is an asset to some extent. 
Q. To what extent?A. That depends on the responsibility of the share- 
Q. It is very limited, is it not?--A. It is, but it is conceivable that you might 
collect the full amount. 
Q. If business should develop in Canada during the next 13 years in the 
way it has developed during the past 13 years, just about three times as much, 
while capital has increased 23 per cent---do you not think it would be wise if 
we could encourage the investment of capital by eliminating the double liability? 
--A. So far as the double liability is concerned, it certainly adds some strength 
to what is there for the creditors. Take the bank which I represent; we have a 
capiial of $20,000,000; we have a reserve of approximately $20,000.000. Suppose 
you only collected 50 per cent of the capital under the double liability, there 
would be another $10,000,000, which would give a margin of $50,000,000 before 
the depositors would suffer. 
Q. But these large institutions do not fail. Take the instance'of the Home 
Bank which did fail; the amount collected is very small, is it not?--A. You 
cannot tell how nmch is going to be collected in the Home Bank yet. Mr. 
Ross informs me that 90 per cent of the double liability in the Bank of 
Yarmouth was collected and 93 per cent in the Bank of Ontario was collected. 
Q. How much in the Farmers' Bank?--A. I do not know, I have not the 
Mr. Ross: I have no knoxvledge of that case. 
WTNESS: AS a matter of fact, speaking from the standpoint of the banks, 
we would like to be relieved of the double liability. On the other hand, it 
undoubtedly safeguards the public and the depositors to a certain extent, and 
perhaps they are entitled to it. So far as the banks are concerned, obviously, 
we would like to see the double liabilit clause removed. At the same time, we 
would never ask for that because it is an added strenh to the depositors. 
Q. Now, a proposal has been made to work out on the insurance principle 
the protection of a special class of savings accounts up to $3,000, so that the 
average person who wants protection can go to the bank and instead of taking 
the regular 3 per cent interest, he would take the class of savings account where 
the percentage of interest would be a little less. and in that way he would con- 
tribute towards the premium. Generally speaking, that is the proposal. Do 
you think that something along that line would be worked out to the advantage 
of both the banks and the public?--A. I am afraid it would be impracticable, 
and misleading. I do not know what the proposal really is; I have not studied 
it, and have no knowledge of it. 
Q. Along the lines of the banks' circulation redemption fund? A. Can 
you make any fund large enough to protect the small depositors? How much 
would you have to have; how much would the banks have to put up? 
Q. It would apply to depositors with $3,000 and under. Have you any 
idea of how much that represents in the total deposits of the banks?--A. Of 
the savings accounts, between 75 and 80 per cent. The Bankers' Association 
have prepared data on that point, and it shows that the small depositor in the 
savings accounts in the banks is a. very material factor. 
Q. Have you worked it out on the basis of deposits of $3,000 and under? 
---_. It is for six banks, but they would not be the six largest banks, because 
[Mr. C. E. Nefll.] 



in our own case we did not take every branch; it is too much to do. We took 
some of the branches which we considered good examples. 
Q. To represent the average?-A. Yes. 
Q. This statement applies to deposits' of $3,0007---A. Seventy-eight per 
cent. Between $3,000 and $5,(}00, 12 per cent, and in the case of $5,000, only 10 
per cent. Therefore, if you are going to protect 90 per cent of the savings of 
depositors in Ca.nada your fund must be enormous. 
Bg Mr. Good: 
Q. Why should it be enormous if the percentage of losses is small?--A. 
You mean if a small bank fails? 
Q. No, why should the fund bc enormous if the percentage of losses on the 
average is small?--A. I do not know what Mr. Ladner's scheme is. He says it 
would be a fund like the bank circulation redemption fund. 
Bg Mr. Ladner: 
Q. The proposal is this, that in addition to your existing system with its 
different accounts, current and savings accounts, you create  special savings 
guarantee, or whatever you care to call it, to protect the savings account which 
would draw less interest than the regular svmgs accounts so that people who 
sought protection wouht know that the money was there when they wanted it 
--where they eouhl put t,heir money and up to the sum of $3.000 or less they 
would be protected by an insurance fund worked out on an actuarial basis upon 
past experience, with the rate of insurance calculated in that way; in that 
manner, the depositor paying a portion, and perhaps the bank paying a portion 
to that special account because they would have some benefit. That would 
constitute the prenitm and to the extent of that fund the protection would be 
given. That is the proposal?A. Is not that just guaranteeing in  different 
torm deposits, and you know that the guaranteeing of deposits has been very 
Q. We had Mr. Skelton Williams here the other day, and hIr. Pole to 
explain the guarantee of deposits in the United States. This is a limited guar- 
antee, limited to the extent of the fund, in the first instance?--A. You do not 
think it would be misleading? 
Q. Why would it be misleading to state to the public what it is? A. Sup- 
posing a large bank had $1,000,000 of deposits, and supposing that bank failed 
and lost everything; what insurance fund could ever protect those depositors? 
Q. It is very unlikely that it would work out that way?--A. It is unlikely, 
but it is a possibility. 
Q. Do you not think that the banks which had the responsibility for that 
particular fund would perhaps invest a certain portion of the deposits in such 
a way that they would really be a protection for that fund?--A. I think this, 
that any guarantee of deposits or insurance of deposits--any scheme of that 
kind lends itself to bad banking. 
Q. In what way? A. The management in some cases. It is quite con- 
ceivable that if the management of a bank thought the depositors were going 
to be paid they would take greater risks in making their loans and in conduct- 
ing the affairs of the bank. 
Q. They would also have their resp'onsibility?--A. Yes, but I think it has 
been generally understood and taken as an accepted fact that the insurance or 
guarantee of deposits is apt to lead to unsound banking. 
Q. hlr. Skelton Williams who was here the other day is  former Comp- 
troller of Currency in the United States. He was Comptroller of Currency for 
seven years, and he has worked it out that in the United States they can guar- 
antee deposits in that way up to $5,000 at a rate of $25 per million dollars and 
be absolutely protected.-A. Where would they be insured? 
[Mr. C. E. Neill.] 

14-15 GEORGE V, A. 1924 
Q. They would work out their own insurance scheme on an actuarial basis 
on past experience. 
Q. Is there any information that you have, or that :Mr. Ross may have, 
with regard to the difficulties in this country, now that we have the information 
that 78 per cent. of the deposits are in accounts of $3,000 and under? Is there 
any information availablc?--A. :No information at all, so far as I know. 
Q. hiy point is this, and it is greatly strengthened by the information that 
we have that 78 per cent of the deposits are held by people with accounts of $3,000 
and under--it shows that the mass of the people are putting their money in in 
that way--do you not think it would be a help to the banking institutions 
themseh'es to have some scheme of protection?--A. :No, I do not know, because 
I am afraid it is not practicable. I do not see how it could work out. If you 
can show me how a scheme of that kind would be worked out, I am sure that 
the banks would be glad to consider it; but I do not think it is practicable. 
Q. But hlr. Skelton Williams who for seven years was Comptroller of 
United States Currency, and who is, apparently, a very expert man, has worked 
it out and recommended it to Congress. Would not that be good authority?-- 
A. It certainly would, but there might be another authority equally as strong 
as hIr. Williams who might say it was wrong. 
Q. In view of the situation in this country as ve all know it, do you think 
it would serve a purpose if authorities like Ir. Williams and others behind the 
idea, if some committee of experts could say whether a proposal like that would 
be practicable in Canada, or could be worked out to t.he advantage of the public 
as well as to the banks?--A. No, I am afraid I do not think it would be advis- 
able to do that, because I do not think any acceptable scheme could be worked 
By Mr. Good: 
Q. Would you be prepared to study it?--A. Absolutely, I am prepared to 
study anything that is constructive and give it the best consideration. 
By Mr. Ladner: 
Q. I am trying to contribute something toward the solution of the sub- 
ject. I do not know much about the subject, but with the authority of Sir. 
Skelton Williams and experts like him, do you not think you might be able to 
work out a scheme?--A. I do not think we could, but there is no reason why 
ve should be prepared to receive any constructive scheme that may be sub- 
Q. Could not some one of the bankers bend their expert knowledge to some 
idea of that kind?--A. They might, but I do not think they would like the idea; 
they do not believe in it. 
Q. Has any calculation been made on which you could base your opinion 
that the scheme is not practicable?--A. :No, the only thing we base our opinion 
on is I think what has occurred in the case of deposits which have been guar- 
Q. That is very different in the United States. In the United States all the 
deposits are guaranteed?---A. Yes. Is not the principle the same? 
Q. :No, because down there all detosits, current and savings, are guaran- 
teed. Is that right?--A. I think so. 
hIr. Ross: :No, the class of deposits guaranteed were not savings. Anything 
that got interest was not guaranteed. 
By Mr. Ladner: 
Q. That is simply a guarantee of good and bad business; that is a different 
proposal altogether. Down there they guaranteed what- we call the current 
[Mr. C. E. Neill.] 



account; that is the accounts of men engaged in business and ventures of busi- 
ness. This proposal is to guarantee the man who pays his money to get it?--A. 
All I can say is, as I said before, I (lo not think, I am afraid the scheme is not 
practicable; but if you can work out any kind of scheme that is constructive, 
I am sure that all the banks would only be too glad to discuss it with you. 
Q. The Bankers' Association have issued a pamphlet in which they 
endeavour to show the impracticability of such a proposal by comparing it with 
schemes that have been worked out in the United States. I want to draw to 
your attention and to the attention of the Committee that the two pruposals are 
entirely different. As Mr. Ross states one protects the current accounts, and 
this protects the savings accounts?--A. I think the thing for you to do would 
be to make a statement showing what the situation was as regards the guaran- 
tee of deposits in the United States and what your proposal is. It is not clear 
to me how you can do it. If you can tell us how you can do it, I would be very 
glad to give you my opinion for what it is worth. 


By Mr. W. F. Maclcan: 
Q. Are you in favour of priorities of this kind in connection with banks?--A. 

Q. Are there any priorities in the banks?--A. The Government deposits, 

Q. And is not the bank note circulation also a priority?--A. Yes. 
Q. It has to be paid out of the deposits?--A. Yes. 
Q. Would it not be much better for the safety of the public if we had, as 
they have in the United States, banks only usin national currency?--A. I am 
not in favour of the banks giving up their circulation privileges. 
Q. But the public are perhaps in favour of it. Now, Mr. Neill, you said 
you were in favour of bank inspection if it was thorough. Is that your opinion-- 
if it was efficient.--A. Yes. 
Q. Would you consider the national system of bank inspection, the system 
of inspecting :National Banks in the United States efficient?--A. So far as I am 
informed with regard to it, I would say it was ecient. 
Q. And practically it does not do any injury to the banks?---A. So far as 
I know, it does not. 
Q. They have a system whereby the examiner can go into a bank whenever 
he like.?---A. Yes, to the National Banks. 
Q. About mergers, we have had quite a number of mergers of banks in this 
country? That is a fact---A. Yes. 
Q. And there is talk of other mergers in this country. How many banks 
have we now?--A. Fourteen. 
Q. Ought there to be any limitation of mergers in this country?---A. I should 
think so. 
Q. Where would you place it?--A. That depends on circumstances. I 
think that if a bank is in bad shape it is very much better for it to merge than 
to fail. 
Q. I might agree with you in that. In connection with the Home Bank 
there was some proposition with regard to merging it, but it probably came too 
late. Was there not an appeal made to the banks generally to try and save 
that bank?--A. :Not so far as I know. 
Q. You are in favour of bank inspection if it is efficient and you have no 
great objection to the system of Federal bank examination in the United States 
as applied to :National Banks?--A. I do not think that the United States system 
can be introduced into Canada. They have unit banks and we have branch 
[Mr. C. E. Neill.] 

14-15 GEORGE V, A. 1924 
Hon. Mr. Stevens: 
Q. Would you mind dealing with the system of in.pection we have here? 
--A. Under the system of internal in.pection--the Canadian banks have all an 
elaborate system of internal inspection; every bank must be inspected once or 
twice each year, or perhaps oftener by a competent man who goes into the 
business very thoroughly. They count the cash, they certify to the securities 
of all the assets, and hey value the assets. These in.-:pection reports come to 
the head office and are studied by the credit department there, and any weak- 
nesses are pointed out to the manager, and those weaknesses are rectified if at 
all possible. The auditors appointed by the shareholders, so far as our bank is 
concerned are practically in t,he bank from the 1st of January until the 1st. of 
December. They are very thorough, they have access to the general ledger in 
the head office, to the Government reurns, to all branch returns, to the inspec- 
tion returns, and to all correspondence. For instance, if t.he general manager's 
department criticise a manager for making a bad loan, where the loan is of any 
magnitude, the auditors scc that and are able froxn that correspondence to 
determine whether the loan is a good or a bad one. 
Q. As a matter of practice, do they exanaine that correspondence? A. 
Very carefully in certain accounts. It is a comparatively easy matter for a 
competent auditor, to take the branch liabilities return and to size up in a very 
short time the weak accounts in that return, the large weak accounts; the small 
weak accounts make no difference. A bank never fails because of the small 
accounts; it is always when there are three or four big accounts weak that they 
go bad. 
Q. In regard to the change made last year, making the audit dual, what 
effect has that had in practice?--A. I can only say that in our ease it has meant 
the appointment of another firm of auditors. Before wc had two; now we have 
three, and we have to rotate. We have three different firms to pass on our 
Q. In your experience of the past year, have you found any reports from 
the auditors regarding accounts that did not occur before?--A. Yes, the auditors 
made certain reports under the revised Bank Act to the directors of the bank; 
they made special reports of accounts over one per cent, I think, of the capital. 
Q. Now, in regard to the terms of our Finance Act, as compared with the 
Federal Reserve Act, you will recall that our Finance Act gives certain privi- 
leges to the banks, in sections 2 and 3, permitting virtually the discount? 
A. Yes. 
Q. Would you compare the terms of our Finance Act and its facilities, 
briefly, with the Federal Reserve discounting system?---A. My opinion is that 
as far as the needs of Canada and the Canadian banks, and the Canadian public 
are concerned, that the re-discounting facilities granted by the Finance Act are 
quite satisfactory--all we need. 
Q. Do you take advantage of it? A. We do. 
Q. Do most of the banks? A. At certain times. 
Q. You find it a convenience in doing business in supplying additional 
credits in rush periods?--A. Yes, a great convenience, and it works adnirably. 
Q. And you consider, having in mind the Branch Bank System in Canada, 
as compared with the Unit Bank System of the United States, this is a fair 
corollary of the Reserve System over there? A. Yes, it answers our purpose 
to the same degree, and possibly to a better extent than the Federal Reserve 
Bank answers the purposes of the banks in the United States. 
Q. What have you to say, Mr. Neill, as to the charge that with the branch 
bank system, the districts served by remoter branches suffer as compared with 
[Mr. C. E. Neill.] 

Q. I know it has been very low for some time. Your point is this; when 
call money and term money, which I think was quoted yesterday at 4, is at that 
rate of interest, then the re-discounting privileges of the Federal Reserve will 
not be taken advantage of?--A. No. 
Q. Until that market money is absorbed. And this period during which 
the Federal Reserve nmde $135.000,000, the profits would be during the same 
period when the Finance Act in Canada showed a large profit?---A. Yes. When 
money gets easy in Canada, you will find the Govermnent will not make as 
much money out of the Finance Act as when money was tight. 
Q. In other words, the Federal Reserve System produces earnings in cor- 
responding ratio to the same shown in this statement of the Finance Act?--A. I 
have not made a comparison, but generally speaking, that is correct. 
Q. And of course this $135,000,000 profit of the Federal Reserve Banks, 
represents the huge business of the United States, and shows that the Canadian 
Finance Act and re-discounting system of $15,000,000 is a fair-- A. Obviously 
we have no expenses in Canada. n the United States, they have great expenses, 
to keep the organization going. 
Q. You mean no expense to the Government?--A. 'o. 
Q. A,11 expenses paid by the bank?---A. I don't know what expense there 
could be. The expense of the Central (old Ieserve is paid by the bank. 
Q. I want to ask one more question regarding the capital and its ratio 
to liabilities. This has been brought up on two or three occasions, Mr. :Neill. 
It has been pointed out that the Canadian bank's capital as compared to their 
liabilities is not nearly so high to-day as it was in 1913. at the time of the 
last revision of the Bank Act. I think I can put this without being too long. 
The capitM of the Canadian banks was mostly suhscribed for and paid in prior 
to the war. There has been comparatively little since--of new capital?A. 
Q. Then the capital--that is, the figures or the amount stated in the bank 
statement would not increase with the inflation of currency?--A. No. 
Q. The figures would remain about the same--that is, the figures 
representing your liabilities and assets would, with the inflation of currency, 
increase rapidly?--A. Yes. 
Q. Without a necessarily accompanying increase of value. Do you see 
my point?--A. Yes, I see your point. 
Q. In other words, I think Fisher's Index shows that the dollar to-day is 
worth about 58 or 60 cents-- 
An Hon. MEM: 58 cents. 
Hon. Mr. STEVENS: Well, we will say 60 cents for illustration. It varies, 
of course. Your capital to-day is virtually the same as it was before the war, 
still remaining at the figure of 1007 
The WIWNSS: Yes. 

By Hon. Mr. Stevens: 
Q. And your liabilities, by this inflation apparent, ly, common to the whole 
world, and the purchasing power of a dollar being 60 cents, in order to make 
a fair comparison, your capital should he reduced to 60 per cent?--A. I do not 
like to answer a question like that offhand. In comparing capital with total 
liabilities I think it is hardily fair to compare it with Australia or South Africa 
or even the United States or Great Britain or France. These figures could 
be prepared and submitted to the Committee, and I think the Committee would 
find that the ratio in Canada is quite satisfactory. 
[Mr. (3. E. Nefll.| 

" Undoubtedly there is, as has been stated, a barren area of credit 
in the lrairie lrovinces, but the credit on land required there can not 
legitimately be supplied by banks. Such loans as are required for the 
development of farm properties are almost a form of capital investncnt 
and can be repaid by the borrowers only over a lengthy period. The 
imperative duty of the banks to their depositors is to avoid just this 
class of bu.incss. Deposits, repayable on denmnd must be utilized in 
loans which are quickly collectable. Long-term loans against land must 
be provided by companies constituted for that purpose. It is gratifying 
to know that the Dominion Government have appointed a commission 
to study the whole qucstion, and it is clearly the duty of banks to 
encourage actively any sound scheme that may bc put forward in this 
Q. Then you and your associates, Mr. Ncill, will be very glad to co-operate 
--A. In every way we can, because what is in the interest of the country, is in 
the interest of the banks. 
Q. There is another resolution suggested, which I wi.h to ask your opinion 
on. It is a resolution by hlr. (larland, and reads as follows:- 
" That Schedule " G " of the Bank Act under the caption ' Assets ' be 
amended by adding thereto the following items :--' Appropriation Account,' 
' Contingent Reserves,' ' Undistributed Profits'." 
In other words, this calls for a disclosure of these statements. Would you 
mind again telling the Committee, as I think you did last year, your ran,n for 
objecting to that being included--if you still have that objection?--A. I think 
the contingent or secret fund of the bank hould not be made public. There are 
many reasons why they should not be. In the first place, a comparison would 
be made between certain banks, and banks which had a very large contingent 
fund might be compared unfavourably with banks with a smaller contingent 
fund, whereas in some cases, a prudent banker might consider it advisable to 
write off debts which looked a trifle doubtful, and another banker might not 
think it so necessary to make such an appropriation. The contingent funds of 
one bank might be larger than the contingent funds of another bank, and at the 
same tilne the actual position of the banks might not be very different. Every- 
thing depends on the wisdom of the men who are writing down the doubtfu| 
Q. Your bank, like all banks, is distributed all over Canada. Assuming 
there comes a very serious industrial and financial collapse, wc will say in 
British Columbia, or 5:ova Scotia--in any of the provinces--or any section of 
the country, and your branches in that district realize serious losses on loans 
made th_ere, would you absorb those losses out of your contingent fund? Is 
that the purpose of the fund--partly?--A. Yes. If we did not have enough 
profits from year to year to absorb them, we would ab.orb them out of the 
contingent fund, and in that way at the end of the year there might be a very 
serious reduction in our contingent fund, and that might be wrongly construed 
by the public. They might say, " That bank has had serious losses, and it has 
weakened its position." I must say, that I can see no possible good to be served 
by making public the figures of your inside reserve. 
Q. You consider it then, sound banking and sound business principles to 
follow, to make provision in what you might call favourable times for shrinkage 
and losses in reclaiming bad periods?--A. There can be no question on that 
Q. You also think it is unfair to publish these, because of the comparison. 
.for instance, of the newer institutions with the contingent funds of perhaps a 
[Mr. (. E. Neill.] 

14--15 GEORGE V, A. 192-1. 
large and old established institut, ion?--A. I cannot see that any good purpose 
would be served by publishing these, and certainly it. is safer not to publish 
Q. Let me put a final question on that point. What do you say to the 
criticism that contingent funds and hidden resources are, speaking from a business 
standpoint, immoral or bad and unsound in principle?--A. I cannot conceive 
why any one shoukl think they would be unsound or immoral. I think they are 
Q. And quite sound and proper? A. Quite. 
Q. That is your opinion?---A. Quite. 
Q. Then here is another resolution which reads as follows:- 
" That the Bank Act be amended to provide that the moneys in the 
Circulation Fund shall first be applied to the payment of the notes of a 
bank which has suspended payment and that the other assets of the 
bank be not applied to the payment of such notes until the moneys in the 
said fund are first exhausted." 
In other words, that the profits of the note circulation redemption fund shall 
be wholly applied to the redemption of notes of a defunct bank, before its 
assets are touched?--A. ][ do not see why the other banks should be asked to 
pay the note liability of the failed bank. That is what it would amount 
Q. The point raised is this--I am not giving you my opinion; I am putting 
the point as it has been argued--that this fund is created for the purpose of the 
redemption of these notes?---A. As quickly as possible. 
Q. Therefore it should be that fund first applied to for the redemption of 
notes? A. Yes. That is right, I think. 
By Mr. Shaw: 
Q. It may be only temporary?--A. Yes, but these funds are reimbursed by 
the bank again? I don't think I quite get what is meant by that resolution. 
Does it mean that the notes will be paid out of the fund, and the fund reim- 
bursed by the other banks? 
By Hon. Mr. Stevens: 
Q. Put it this way. The Home Bank failed, and the contention is that the 
note redemption fund should have been applied to the redemption of the Home 
Bank notes without an appeal to the assets for that purpose? A. Would the 
fund be reimbursed out of the assets of the bank? 
Q. And then they claim that all of the assets of the bank, provided there is 
enough in the fund to redeem the notes, shall be applied to the payment of 
depositors? A. In other words, if there was not enough to pay the depositors, 
the bank circulation fund would have to be built up again by the other banks? 
I do not see why the other banks should be taxed to pay the note liability of 
failed bank. 
By Mr. Irvine: 
Q. Then you do not protect your notes?--A. In case there were not enough 
assets to pay them-- 
By Hon. Mr. Stevens: 
Q. Let me put it this way: Is the bank circulation redemption fund pro- 
vided by the bank to supplement the assets of a bank that has failed, for the 
purpose of protecting the note circulation only? That is, if the assets are 
exhausted and the notes are not paid? A. Then the bank has to pay, but not 
until the assets are exhausted--perhaps I don't understand your question. I 
know how the fund works. 
[Mr. C. E. Neill.] 

Q. And 
Q. And 
A. Yes. 
Q. And 

14-15 GEORGE V, A. 1924 
Q. And the shareholders and depositors in suc,h cases must carry the 
burden without auy recourse?---A. Always provided that the director does his 
duty; if he does not, he must suEer. 
By Mr. Cahill: 
Q. Mr. Neill, on that point of secret reserves. Who administers secret 
reserves? Are the directors all aware of the secret reserves?---A. Yes. 
Q. And the shareholders' inspector or the shareholders' auditor has access 
to the secret reserves?--A. He knows hat they are, yes; he must know. 
Q. Does he investigate them?--A. Perhaps. If you will permit me, I will 
say that a contingent fund is a fund set up in a bank that is available to take 
care of bad debts in case of need; it is iust a heading opened up in the general 
By [r. Hanson: 
Q. What form does it take?--A. It takes no form; it might be $20,000,000 
or $50,000.000--of course, I am speaking in absurd amounts--but it is an 
amount that is kept in the books, and tha is available, and it is invested in the 
general assets of the bank. 
Mr. Maclean: 
any claim written off goes in there?--A. Yes. 
Mr. Cahill: 
it is subject to the investigation of the shareholders' auditors?--- 

would be under government inspection?---A. Yes. 
By Mr. Irvine: 
Q. Just a few questions arising out of the examination by Mr. Woodsworth 
and Mr. Good, which I did not get quite clearly. I understand, Mr. Neill, that 
you disclaim any power on the part of the Bankers' Association to control credit 
in respect to inflation and deflation?---A. That is so. 
Q. Would you say that it is better that it should not be controlled--that an uncontrolled credit system?--A. I would say so. 
Q. Just left any way it wants to be?--A. The bankers, as bankers, must 
exercise their intelligence. 
Q. And of course, how can they exercise intelligence if they do not control 
it?--A. Each bank controls its own loans. 
Q. No, each bank controls its credit?--A. Yes. 
Q. You were saying they did not control it as regards the credit of the 
nation?--A. As an association? 
Q. Don't you think that somebody ought to do that?---A. To control the 
credit loans of the banks? 
Q. Control the whole credit of the nation--in respect to the nation's 
business?---A. I do not think it is necessary. 
Q. You think it would not be wise?---A. I think it would not be wise. 
Q. I think you also said that if the government issued all the currency of the 
country, that would result in a curtailment of credit?---A. Yes, to some extent. 
Q. It was not clear to me how that would happen. Supposing I put the 
proposition to you; how many bank notes are in circulation in Canada at the 
present time?--A. I can't tell you that; it appears in the Government statements 
every month. Notes in circulation at the end of March $170,850,000. 
Q. Supposing that the Government should issue in addition to its own 
notes, $170,000,000 and distribute them exactly as they are now distributed. 
In what way would that curtail eredit?---A. Of that $170,000,000, you must 
[Mr. C. E. Neill.] 

14-15 GEORGE V, A. 192a 
By Mr. Irvine: 
Q. Do you say that the disparity between the capital of the banks and the 
liabilities of the banks did not constitute any appreciable danger?--A. I don't 
think so, at the present time. 
Q. Are we to infer from that answer that capital is more or less incidental 
to banking?--A. :Not at all. 
Q. If there is no raf, io between the bank's capital and its liabilities, what 
is the use of the capital?--A. I think there is a ratio, but I think in Canada we 
are still on the safe side, considerably below the ratio in England. 
Q. What is the safe side?--A. I do not think I am sufficiently well informed 
as to that. You can iudge that as well as I can. 
Q. Don't you think every man in Canada ought to know that? A. We 
are on the safe side. 
Q. I have no doubt you are on the safe side.--A. I think when we get to 
the danger point wc will take care of that. 
By Mr. IVoodsworth: 
Q. How do you know that? You see some of us are ignorant of that. I-Iow 
do you know that?--A. I am certain that we are well below the ratio that 
obtains in England, for instance. 
By Mr. Irvine: 
Q. But Engltnd is not safc?---A. How can you judge these things? 
Q. That is a point I want to get at.--A. I do not know whether there is 
any hard and fast rule for judging these things. 
Q. If you say there ought to be a ratio, I would like to know what it is? 
A. I cannot tell you that. 
Q. You cannot tell us?--A. No. 
Q. I think you said you have not given any consideration to the proposi- 
tion of hit. Ladner's proposal regarding the insuring of deposits? A. 
because I was never quite satisfied as to what h'Ir. Ladner's proposition was. 
Q. You thought it would not be advisable?---A. That is my personal .feel- 
ing, yes. 
Q. Would you be willing to study it--we don't know whether it will work 
or not?--A. I will be very glad to. 
Q. Would you be kind enough to call the Bankers' Association together 
immediatelv and receive h'Ir. Ladner's proposition, and report to this Commit- 
tee upon it'?--A. If h'Ir. Ladner will make his proposition in concise shape and 
in a practical way, and give it to me as the acting head of the association, I 
will tell the members of the association that we have got it, and this Committee 
has asked us to meet and give them our views. 
Q. That is all I want, because there may not be anything in ]Ir. Ladner's 
proposition, but I would like to know if there is. 
The CnmMn: In respect to that, it might be well to ask :hIr. Neill if he 
requires anything additional in order to put hr. Ladner's-proposition in con- 
crete form--in addition to what is shown on the order paper. 
By M'. Ivvine: 
Q. You have heard the question of the Chairman? A. I find it very diffi- 
cult, so far as I am concerned, to establish a fund somewhat similar to the bank 
circulation redemption fund, to insure deposits. I find it very difficult to deter- 
mine, in my own mind, how that could be done, or on what basis you would 
assess the banks. 
Q. I think your obiection, as stated, to the proposition, was that it had not 
worked out in the United States? A. Guaranteeing of deposits did not, no. 
[M. (2. E. Neill.] 

]4-]5 GEORGE V, A. 1924 
Q. We have a Finance Act under which, as you have suggested, there is the 
power to discount securities of a certain character and to fix the rate of interest? 
---A. I think the rate of interest is variable. 
Q. The maximum is fixed, I think?--A. No. 
Q. Or probably it is the minimum?--A. I do not think that any rate 
is fixed. 
Q. But as a matter of practice, it has always been at the rate of 5 per cent? 
It has never varied?--A. Not recently. 
Q. Has it varied at all?---A. It varied during the War on a certain class of 
Q. But during the period from the end of the War to the present it has 
not varied at all? A. No. 
Q. Iow that, of course, is administered by the Treasury Board--that 
Finance Act?--A. Yes. 
Q. And the Treasury Board, as you know, consists of the Minister of Fin- 
ance, the Deputy Minister of Finance as secretary, and I think four or five other 
Ministers of the Crown?--A. Yes. 
Q. That is what I would call a political body, is it not?---A. Yes. 
Q. Would you say that all of those gentlemen are experienced bankers? A. 
Not likely to be. 
Q. And under our system it is not likely they ever will bc?-A. I should 
not think they would bc experienced bankers, no. 
Q. I want to get clearly in my mind what happens. We will suppose you, 
representing the Royal Bank, go to the Treasury Board and say, "Here are may 
securities; I want a certain amount of money at 5 per cent," and they say 
"Very well, Mr. Neill, we will let you have it"; they issue to you Dominion 
notes, do they not?--A. Yes. 
Q. What do you do with those Dominion notes? A. We use them to make 
loans with. 
Q. But you do not want to circulate Dominion notes? A. We put them 
in our Gold Reserve, and use our own notes. 
Q. That is one method of increasing your own circulation?---A. That is one 
method of increasing our own circulation, but the increase is backed by Domin- 
ion notes. 
Q. Quite right. The situation is that the Dominion notes are in the Central 
Gold Reserve?--A. Yes. 
Q. And as security against them you issue your bank notes which go out, 
and quite properly bring in a rate of interest?--A. Yes, say 6 per cent, and we 
pay the Government 5 per cent. 
Q. So it pays you, under the circumstances, to issue your own notes? If 
it did not pay, you would not use them?--A. Unless we neeced the money. 
Q. What I want to get at is this. This reserve is under the control of four 
trustees, is it not? A. Yes. 
Q. And then the Finance Act is under this Treasury Board. We also have 
in addition to that the returns made by the Bank to the Minister of Finance 
monthly or yearly. You know about that, of course?---A. Yes. 
Q. And those go to officials of the Department, not skilled officials at all. 
I mean it is merely an adding machine requirement of the Minister of Finance 
as far as we know?--A. I would not say they were unskilled officials. 
Q. They are not experienced bankers, anyway? A. 1o, they are not 
experienced bankers. 
Q. And what they do is to tabulate, just the same as an adding machine, 
and send this information to the public in the Canada Gazette, etc.?--A. Yes. 
[Mr. C. E. Neill.] 


14-15 GEORGE V, A. 1924 

By Mr. Shaw: 
Q. Have you read Mr. Keynes' book? A. :No. 
The witness retired. 
The Committee adjourned. 
The Select Standing Committee on Banking and Commerce resumed at 4 
o'clock p.m., Mr. Vien, the Chairman, presiding. 
Doctor tI. M. TORY recalled. 
By the Chairman: 
Q. Doctor Tory, are you ready to make any fuIther statement to the 
committee in respect of the rural credits?--A. Mr. Chairman, may I answer 
a question that has been suggested to me, that I look at page 787 of last year's 
report., and give you an opinion on that. My opinion does not differ materially 
from what Professor Swanson says. Without question, there are a good many 
people in difficulties who would have trouble in presenting a proper security for 
loans. On the other hand there are a great many people who would have no 
trouble in presenting security, whose lands, properties, are in an advanced state 
of development, and who would be able to present substantial security. I am 
quite sure of that. I might illustrate that by saying that I inquired of one of the 
large loan company inspectors in Edmonton, and he told me that they had in a 
certain district with Edmonton as the centre loans out to the extent of approxim- 
ately two million dollars, and there was only one questionable loan in the lot. 
That would be a distinct that would probably be specially advanced. They were 
having no anxiety about their loans in that district at all. He said if we were 
to go outside of that area, fresher north, where the land is less cultivated, or 
where the land is not quite so good, we would find a great many people in 
difficulty. I was not able to get any figures that would give me any indication 
of the ratios of the numbers of persons who were in very great difficulty. I had 
hoped to make a survey of ceimin districts but it was impossible to do so. I 
think perhaps that is sufficient on that point. 
Q. In a word, the system would be created for the relief of those who can 
offer security, and the relief would be mainly that an amortization plan would 
be introduced which, by the fact that the rate of interest would be lower, would 
allow them by what they would save, to amortize the amount?--A. That is the 
scheme that has been put into operation almost everywhere. That is the idea 
we have. Then there is another question. 
Q. There will be, however, a certain number, which cannot be ascertained, 
who will be unable to profit by the system on account of the lack of security? 
--A. They will be unable to give the kind of security this scheme demands. 
They will have to be treated in some other way. I see on looking through my 
evidence yesterday that I made one slip; I said that the rate of interest for the 
intermediate banks was the same as for the land banks. That is not quite 
CoITect. The ra.te at which bonds are sold by the land banks is  maximum of 
5 per cent, so the interest rate there is at a maximum of 6 per cent. In the 
intermediate banks they are allowed to sell bonds at a maximum of 6 per cent, 
which with 1 per cent, would make a maximum of interest for the intermediate 
baks at 7 per cent. Someone asked me if the rates were the same, and I said, 
"Yes," without thinking of the difference between the two. 
:Now, Mr. Chairman, the question that was asked--and I judge by the 
fact that no one has started asking questions about it, that you are expecting 
me to answer the question of what I would recommend in the way of immediate 
relief--I recognize that that is asking a very definite and serious question, and 
[Mr. C. E. Nefll.] 

14-15 GEORGE V, A. 1924 
By Mr. Garland: 
Q. Do you include the banks?--A. No, I am speaking now of the govern- 
merit organizations. 
By Mr. MacLcan: 
Q. Is there any danger of political interference in these provincial 
organizations now?--A. I would prefer not to answer that question, Mr. Mac- 
Lean. The history of these organizations, some of it is not a very happy 
history, as I think those of us from the west who know about it will agree. I 
was stating that the organization could absorb these local government organi- 
zations so that we will have it in one central organization comprehensive of 
Canada. These banks ought to be capitalized by the governments--Dominion 
and local, and private moneys if it could be so done. In the United States of 
America they tried to obtain private money to go along with the govermnent 
money, and they failed to do it as far as the capitalizing of the banks was 
concerned. They got it. in abundance as far as the sale of bonds was 
concerned. They should be financed by the sale of 'bond,; they should be 
autonomous but centrally controlled; they should be regulated as to rates of 
interest; there should be fixed dividends on capital; there should be co-operation 
in the method of making loans--I am going now back to the local associations-- 
there should he co-operation in the met:hod of making loan,% with purchase of 
capital stock and such an additional liability on individuals as is necessary to 
make borrowers have a sense of responsibility. Further, the loans shout! be 
only for productive, and where necessary extended under ar,ntees, 
and finally, it should contain an amortization plan. 
By Mr. Spencer: 
Q. May I ask a question, Dr. Tory? You say the loans should be only 
made for productive purposes?--A. Yes. Perhaps I had better say instead of 
" productive," " aicultural " purposes. 
By Mr. Garland: 
Q. For the relief of past due indebtedness? A. Yes, and an amortiza- 
tion scheme. :Now, I have tried to put in the fewest words-- 
By Mr. McKay: 
Q. Is that long term or short term loans?--A. I am speaking now of long 
term loans only. 
By Mr. MacLeat,: 
Q. How long would it take to put that in operation so it would help the 
distressed people?--A. The difficulty in the way, .s I said at the last meet- 
ing, is the difficulty of co-ordinating the present efforts into a common system, 
and I would suggest this. You asked me definitely to state what I would 
do in the emergency. If we were free to do what we thought was wise in 
/he emergency, and I was advising what. to do, I would advise that legis- 
lation be passed in this Parliament for the purpose of allowing the Dominion 
government to make loans in the interim to local governments to be used 
through their own machinery, on the guarantee of the local government, and 
that we be given time to work out a general plan that would be comprehensive 
of the whole. 
By Mr. MacLean: 
Q. The main thing is to get the authorization of this Session?A. I have 
thought of it a good deal, and I see no other way of obtaining the time to 
[Dr. H. hi. Tory.] 

work out a scheme, and at the same time relieve the pressing needs of the 
people except by the government taking action. 
By Mr. Good: 
Q. The suggestion was made at the last sitting at which you attended that 
that assistance should take the form of advances under the Finance Act as it 
is now, to the banks. Have you considered that?--A. Yes. That raises the 
question that hit. Shaw asked me about, to consider the central reserve bank. 
Q. Not necessarily, I think.--A. It is involved in that to a certain extent, 
the same idea is in it as far as the long term loans are concerned. I think there 
is very serious and grave difficulty in the way of operating either the Finance 
Act or a Central Bank for the purpose of long time loans, but for the purpose 
of short term loans I do not see any difficulty in the way. 
Q. You quite misunderstand ne. I had reference only to the emergency 
legislation, not to any permanent scheme.---A. My judgment would be that the 
Dominion government, if it should pass such legislation, should do it in the 
way best calculated to do if easiest. 
Q. Have you thought of the nmnner in which it might extend help? 
Here is what I mean. Supposing the government goes and borrows from the 
banks at 6 per cent, and loans it out to the provincial governments at 7 per 
cent, or something like that, or say at the same percentage. That will start 
at a pretty high percentage, and it is questionable whether the provincial gov- 
ernments, unless operating at a loss, can be of very much service?--A. I would 
take it for granted that the Dominion government, if it did such a thing, 
would use its machinery for getting money at the cheapest price possible. 
Q. You know last year, I think, or two years ago, one hundred million 
dollars was borrowed in New York on the mrantee of the Dominion govern- 
ent, and I was wondering if you had given any consideration to that point. 
--A. No, I had just thought that if that is to be done the Dominion govern- 
nent would take its authority and make the loans to the local governments. 
I had not thought of the way they would get the money. 
By Mr. Miller: 
Q. You have referred to the difficulty of getting relief to those who have 
not sufficient security. Take the case of one who, because of his pro- 
perty going down in value--say he owes $6,000 and this new organization would 
consider it security for not nore than $5,000. Would that be available, and how 
would it be available to give him relief to any degree, or could it give him any 
relief?-A. Do you mean if his debt was $6,000 and his property was only 
valued at $5,0007 
Q. :No, the organization considers that it is only security for $5,000.--A. 
I would say that wise men would consider a man's personal quality. I know in 
the United States the personal quality of the man is often a very very large 
item in determining just what the value was. If a man was known to be good, 
that was taken into consideration. 
By Mr. McKay : 
Q. Character loans? A. Yes. For example, they told me of a case where 
hey were making a loan and found that the man had a still on his farm, and 
they immediately refused the loan. They would not trust a man whose char- 
cter was of that sort, who was violating the law. 
hit. CoowE: He would probably make more money out of the still than 
e could out of the farm. 
The WITNESS: My judgment about the situation as it stands at the 
present time is that the institution of such a scheme will help those who are 
[Dr. H. hi. Tory.] 

a question whether you will get the Government to consider it. But that would 
be the proper method to approach it. 
By Mr. Spencer: 
Q. Did not the Alberta legislature pass legislation last session to enable 
it to co-operate with the Federal Governmcnt? A. I think the idea is to have 
co-operation, and I know that the Manitoba Government would do it. I do not 
know about the Saskatchewan Governmcnt. They have their own plan working 
fairly smoothly. 
Bg the Hon. Mr. Stevens: 
Q. I would like to ask a few questions alon the line of your investigation, 
which is undoubtedly a most illuminating one. First, security for loaning 
purposes is looked upon as much more suitable in settled districts than in new 
districts?--A. Unquestionably. 
Q. Undoubtedly it is a principle that must be recognized that rates are 
naturally hiher wherc conditions are unsettled than where they are stable?-- 
A. If you are speakin of mortgage companies, yes. 
Q. I mean in the main, general rates of interest.--A. You are not speaking 
for the moment of these organizations? 
Q. No. Would I be correct in puttin it this way: Your investigation 
in the United States, particularly--I think we can perhaps confine ourselves 
largely to that--in your investigation there you found three classes of 
borrowers, of those needing credit; first, the nmn who has a sound and fixed real 
estate credit which might be called ood mortgage security?--A. Yes. 
Q. Then you have another class with perhaps some embarrassing debts for 
machinery or stock and so on, which would be covcred in the intermediate loan 
c.lass, whose security might not be quitc so good. Then thcrc is a third class 
in the United States, for instance, in that northwestern State that you refer to, 
where neither the real estate nor the stock and equipmcnt security is sufficient 
to meet their enlarged needs?--A. Ys. 
Q. That is the problem?---A. The two together. I think form the problem. 
Q. But the latter one particularly?--A. Yes, the lattcr one particularly. 
Q. That is a fair division or classification in the United States?--A. Yes. 
Q. Did you find that the Farm Loan Board with its various subdivisions, 
to which I shall refer in a moment, fairly meet these two?--A. I would say 
that they have not refused loans where the first two conditions were reasonably 
fulfilled. I think that can be said. 
Q. The first?--A. Without question. 
Q. And the second fairly well, but the third is not really met at all under 
this? A. No. 
Q. :Now we will come to our own country, to the Canadian Northwest par- 
ticularly, and some districts in British Columbia, but the three Prairie Pro- 
vinces, particularly. Is the presence of a substantial number of the third class, 
irrespective of what the causes are, contributory to the high rate of interest for 
the other two classes?--A. Of course, I cannot answer that questioa absolutely, 
but I would say this, that the general impression one ets from the mortgage 
companies is that they rate the interest on a sort of average rate; in other words, 
they insure themselves under the good risks. 
Q. I do not think that any exception will be taken to that. In other words, 
it is like a rocer doing business on a credit basis; he must carry the bad accounts 
on the ood ones, and in the loanin business the good loans must pay for the 
poor loans. That is pretty well accepted I think. 
hIr. KELLNER: Does that apply in banking? 
[Dr. FI. hi. Tor3,.] 

14-15 GEORGE V, A. 1924. 
Hon. htr. STEVENS: Generally speaking, undoubtedly. I am not seeking to 
raise an argument. I am not asking these questions for the purpose of drawing 
Dr. Tory into a trap or anything of that kind. I want to try and get a proper 
basis for what we are to consider. 
By Hon. Mr. Stevens: 
Q. Now, in a scheme that for instance would provide an ample supply of 
credit for the number one and number two classes on their basis, it would be 
possible to do it on a very much lower rate of interest than they are to-day 
doing it; if we segregate these into those three classes, and for the moment elim- 
inate the third class and provide a scheme to take care of the first two classes, 
the prevailing rate of interest to these two classes will be materially lower?-- 
A. Certainly, if you eliminate the most risky part of the borrowings, you elim- 
inate the element of danger; but this must be said that no company is lending 
money to the third class to-day. 
Q. I quite appreciate that, but I was saying that that would be the effect? 
--A. Yes. 
Q. Would it not be quite sound to say this, that we ought to segregate this 
third class and consider it as a problem in itself?--A. That is what the United 
States is trying to do now. 
Q. Do you think 'e will have to do that?---A. I think so. 
Q. It is a problem in itself that must be faced by the country. I am trying 
to get this thing divided so that we can perhaps approach it from two stand- 
points. There is sound business in this and there is poor business from the lower 
standpoint. Now, may I go a step further. Such a general scheme as they have 
in the United States can be made applicable for a rural loaning scheme in Can- 
ada, having in mind the two first classes?---A. Yes. 
Q. And it would fairly well solve their difficulties?A. I think so. 
Q. Now, the second class which I mentioned would include particularly our 
Western farmers who find themselves to-day burdened with heavy obligations 
regarding machinery, prompt payments on machinery and upon seed where they 
have had a bad crop and such like, and those loans could be co-ordinated and 
covered by this American system? A. I am not inclined to say that that would 
be the class that would be most benefited by any farm loan of this type. 
Bg Mr. Garland: 
Q. Is it not true that so far as the Northwest is concerned, the last few 
years have resulted in a very large cleaning out of that class, of the second class 
mentioned by Mr. Stevens, and that the first and the last are really the two 
classes left. Mr. Stevens referred to one class as indebted to lumber companies, 
machinery companies, and so on; in my opinion they have been largely closed 
out in the last few years?--A. You can speak probably with more authority on 
that than I can, but my }udonent would be that there is a considerable number 
of that class left. 
By Hon. Mr. Stevens: 
Q. Now, another step, Doctor. In this Farm Loan Board system, which we 
have in this document, on page xcix of the report, am I correct in saying that in 
every instance where the original borrower the "farmer" is the term used--gets 
his advances only when the application and indeed his paper, is endorsed by 
either a co-operative institution or a bank?---A. Yes, excepting where dealing 
with a joint stock bank. 
Q. Even there the joint stock bank must go back of his paper?--A. The 
joint stock bank makes the loan. 
[Dr. I-I. M. Tory.] 



Q. The ioint stock bank does loan direct? A. Yes. 
Q. But in all the other cases---A. Somebody else must endorse. 
Q. No,v, would you consider that the scheme--having in mind this emergency 
you were speaking of-whereby the Federal Parliament would make an advance 
to the provinces, and the provinces through their loan system would receive the 
securities and endorse the securities, depositing that exact collateral endorsed 
by them the Government?--A. I have thought of that as embodied really in the 
suggestion I made. The kind of security which the Dominion Government 
wished to take from the local Government might involve the collateral from the 
mortgages, and the responsibility would be--as it is here ultimately, should the 
borrower fail--on the local Government. I doubt if having the mortgage put 
through the Government would add anything to the security. The local Govern- 
ment. would probably be the security. 
Q. Would you suggest the Federal Government making an advance, say 
$25,000,000. to a province, and allow the province full liberty in making a loan? 
--A. No, I would not suggest any such sum. I was thinkig of the moderate 
sum, to meet the present emergency, only, until the whole thing could be 
straightened out. 
Q. Never mind the sum; how about the method? A. If the sum was not 
larger than the normal borrowing power of the province, I do not see why it 
should not make the loan to the province, and hold the province responsible. 
Mr. SHAv: Similar to the scheme? 
The CH.UM: In the Housing Scheme and the Highway Act, the same 
thing took place, but there were regulations by Order-in-Council to govern the 
conditions for advancing to the individual municipalities. 
The Wwss: I think that should be done. 

By Hon. Mr. Stevens: 
Q. :Now, in connection with the banks--I put the question to Mr. Neill, this 
morning, and he very promptly and very frankly responded that the banks would 
welcome any workable scheme in rural credit schemes. Have you considered a 
scheme whereby we could secure the co-ooeration of the large banking systems 
of Canada in connection with rural credit?--A. I had a discussion with two or 
three of the bank men about the possibility of the banks helping, say the local 
banks, the Dominion Government and the local government )oining hands on it, 
and I found an expression of good-will as to the possibilities of that. 
Q. Would you consider this,--and I am not reflecting at all. but )ust stating 
the cold-blooded facts--would you consider yourself sufficiently informed on 
the whole question in Canada and the possibilities of the application of the rural 
credits to enter into a conference with bankers now, and representatives of the 
Government? A. I think I would know enough about it to take part in the dis- 
Q. You think it is far enough advanced for practical discussion?--A. Yes, 
but as I said the other evening, I would have liked to have had a chance for 
observation right in the heart of the country. I could not do it in mid-winter; 
it was impossible. 
Q. What do you think of the suggestion put forward by the Minister of 
Finance--and when I say "The Mifister of Finance", I mean his nominee, and 
the Bankers' association, or a representative of them, and yourself, to enter into 
a conference for a study of this question with a view of i,nmediate legislation 
and I mean by "immediate", this session?--A. It will take some little time. 
Personally I am quite prepared, if needed, to drop everything else and go at it. 
Q. Do you think there would be any result?--A. I would doubt whether 
we would get far enough for legislation this session, because I imagine any 
legislation of that sort would be fairly contentious, and it might take time 
[Dr. H. M. Tory.] 

14-15 GEORGE V, A. 1924 
to get it straightened out, unless we could get all the parties to agree upon it 
Q. Having in mind this emergency legislation of which we have been 
speaking, do you think that such an emergency legislation as we might be 
able to design and pass this session would meet the needs of this third class the 
most unfortunate class, and the class which presents the greatest problem?--A. I 
have very Krave doubts about that, Mr. Stevens, and the possibility of any 
emergency 1-egislation meeting any considerable number of this third class, of 
which we are speaking. Some of the members would know better about the 
conditions in the country than I do. 
Q. Then, have you considered this--let us not make it solely Canadian, but 
take your experience and observation in the United States--would you think 
it advisable for the Government, for instance, to encourage a wholesale bankrupcy 
movement on the part of these people, let them go into bankruptcy. If it is 
hopeless if the tiling is so hopeless as many of the investigations would seem 
to indicate? Have you considered that? A. I have thought of that, Mr. Stevens. 
This is tile way it appeals to me. There are certain people who will ultimately 
go into bankruptcy, and it can be fairly well determined in dealing with indivi- 
dual cases who these people are, but the experience of Mr. Fraem of the Debt 
Adjustment Bureau, has shown that with a little care in bringing together the 
debtors and the creditors--the various groups of people concerned--adiustments 
can be made that would bring a great many such men through. That is to say, 
they will not go through a Bankruptcy Court, but schemes would be reached to 
give these men a chance to start over again. They have had a good many cases 
of adjustment in Alberta; I do not know iust how many, but I think several 
hundred all told, with very. Kreat success. The Kentleman, Mr. Fraem, who has 
been handling the matter, I feel sure, would say that he does not want any inter- 
ference whatever, but desires to be allowed to work it out with the mortgage 
companies. He has found such good -ill and such effort to make adiustments, 
that he does not want ang interference at all. 
By the Chairman: 
Q. Do they proced under the Bankruptcy Act? A. IX'o, tl:'ey meet around 
a table, and they say " Here are this man's assets, and this is how much he 
owes"--I have not followed the details, but I know of a good many cases of 
that kind. 
By Hon. Mr. Steves: 
Q. What I am trying to come to is this. Is there any hope for this third 
class, and if so, is there anything we can discover to bring about partial or hole 
relief, having in mind all these things, particularly your last reference to this 
experience in Alberta? Do you consider there is any legislation we can pass this 
session that will bring relief to this third class? A. It would certainly bring 
relief to that third class whose affairs on adjustment would make a mortgage a 
reasonable way of getting them started again, and adiusting their indebtednesses, 
perhaps compromising,--I think that is the word used in bankrupcy--so a mort- 
gage could be taken on their property. 
Q. That is acting on a scheme such as Alberta is now using?--A. Just get- 
ting local gp'oups of the men working on it and trying to find a way out. 
Q. Then you think that could only be done by passing what we will call 
an " Enabling Act," placing in the hands of the Federal Govenment a sum of 
money with which they may deal with this emergency?---A. Really, after thinking 
it over carefully, I have not seen any other way out immediately unless they 
decide it is the duty of the Federal Govermnent to go into this business and 
run in competition with the local government, to start loaning money in the 
country, but I doubt if we could get very far this session. 
[Dr. H. M. Tory.] 

By Mr. Garland: 
Q. There would not be niuch competition, iust now.--A. Not much, I sup- 
Bg the Chairman: 
Q. They are not loaning any further presently, but already they are bor- 
By Hon. Mr. Stevens: 
Q. Have you any estimate of what would give a measure of relief? A. 
I have not. 
Q. Have vou any knowledge of any figures we could secure which would 
give us an estimate of that?--A. I think an estimate could be l=ad. I tried to 
get an estimate in Manitoba, for example, but I did not get ny very satis- 
factory information. It was said to me in Manitoba, " If we h,-t three or four 
million dollars it would be a tremendous relief". That general remark was 
By the Chairman: 
Q. In Manitoba?--A. Yes. I do not know how far $10,000,000 would go in 
the solution of the difficulty. 
By Mr. Maclean: 
Q. Have the local government any particular schenie, or have they made 
any representations to the Dominion Government for relief? A. qo, I think 
the local Government was waiting for the result of this discussion. They list- 
ened with nore than interest, and were waiting anxiously for action last year-- 
hoping that something might be done. I think it is their attitude of mind to-day 
that +hcy are waiting for relief. I know I spoke to Mr. Black at Winnipeg, and 
also to Mr. Reid, our Treasurer in Edmonton, and suggested if they were going 
to pass legislation, they should hold it until we could get a chance for a confer- 
ence, and they felt that something had to be done, and perhaps would be done, 
Q. Then the local Govermnent are looking forward to a confercnce?--A. I 
think they would welcome that. I am speaking only of the western governments. 
hit. COOTE: ] think we are having rather a wide latitude in the Inatter of 
rural credits, and I want first to ask the C'hairnmn's permission in what I have 
,to say, that I be allowed to cover the same ground as hlr. Stevens. 
The CHAIRIAN: I think it will be agreeable to the Conmiittee that the 
greatest latitude be given on this subject. We are trying to obtain as clear a 
view as we can on the possibilities of introducing legislation to relieve the 
situation, as we know it exists, therefore, the widest latitude should be given, as 
I think that is the only way to make any headway. 
The WITNESS: Before Mr. Coote starts, may I add this one word? Mr. 
Stevens' question has brought out the exact reason why I hesitated to make a 
recommendation, because the weak point in my investigation is that in the 
count. I was asked to do this work in the autumn of the year, and I was not 
able then to get to t'he country, and when I was able it was impossible to get 
around very much, and I looked forward to doing that end of it later, when 
conditions were more favourable. You will see the reason at once why I have 
hesitated to make any formal recommendation. 
By Mr. Caldwell: 
Q. What do you think of the practicability of a scheme for each province to 
set up machinery for carrying on farm loans? Would the overhead cost be so 
[Dr. It. M. Tory.] 

14-15 GEORGE V, A. 1924 
up. We have a provincial Farm Settlement scheme, which is used as a colon- 
ization scheme, and a Dominion Soldiers Settlement Board with branches in 
:New Brunswick. Will you think the matter over as it affects :New Brunswick? 
--A. The Soldiers Settlement Board might be effective there. 
Q. Would there be a possibility of handling it through the Soldiers Settle- 
ment Board or the provincia4 Farm Settlement Board? A. It is quite possible. 
By Mr. Garland: 
Q. Doctor Tory, when :h,lr. Stevens was examining you this afternoon he 
referred to the fact that in well-settled districts the rate of interest, under the 
commercial mortgage sysbem was naturally lower than in more sparsely settled 
districts. Now, is it your opinion that under any long term system of rural 
credits, to be of any value to this country, there should be a variation in the 
rate of interest over the province?--A. :No, I do not think he was asking me to 
say there was. He was simply speaking of a question. 
Q. I am not imputing anything to hlr. Stevens.--A. Yes, but in my reply I 
was referring to the practice of mortgage companies, under the practice of a 
scheme like this, where there can be only one rate of interest. 
Q. You believe then there should be an average rate of interest for long 
time farm mortgages over the whole country?--A. Yes, consistent with a security 
--only with a certain type of security. 
By Mr. Stecdsman: 
Q. You concur in a general way 'ith the classification given by Ir. Stevens, 
that is, classifying the borrowers within the three groups?---A. I could classify 
them in t'o or three other ways equally effective. 
Q. But that was generally understood that was about the classification into 
which they would fall?A. Yes. 
Q. :Now, with regard to the province of Ianitoba again. Would you sug- 
gest that the need for an emergency fund coming to the relief of the provinces at 
the present time would be to take care of, generally speaking, the loans tha 
are, say, coming due this year; if they could not renew them it would place the 
men from class two into class three, of the classifications we were speaking of 
a while ago; this to take care of the people who are in danger of getting beyond 
a limit of solvency. You would not recommend any great amount be advanced 
to any province, but only a limited amount to take care of the cases of that 
nature? A. The cases that were in danger. 
By lilt. Good: 
Q. Doctor Tory, do you think ten or fifteen million dollars would be quite 
effective as relief this year, taking the count3r as a whole?--A. I would doubt 
if the machinery in existence could handle effectively more money than that. 
Then again I am subject to the opinion of the men who know the whole nature 
of this machinery now, but I suspect that is as much as could be handled. I 
would say ten million dollars as the outside limit. 
By Mr. Benoit: 
Q. For all the provinces? A. Yes. 

The witness retired. 

The committee adjourned. 
[Dr. H. 1,. Tory.] 



THURSDAY, June 5, 1924. 
The Select Standing Committee "on Banking and Commerce met at 11 
o'clock a.m., Mr. Vien the Chairman, presiding. 
The CHAIRIIAN: The Acting Minister of Finance has a statement to make 
to the Committee. 
Hen. Mr. 1Ronn: hIr. Chairman and gentlemen, at a previous sitting you 
will recall that a statement was made that the Government had under con- 
sideration an amendment to the Bank Act to provide for more adequate 
inspection. I will table that proposed amendment so that it can be printed in 
the records. It is a proposition which I hope will meet with the approval of the 
Proposed amendment tabled. (See page clviii}. 
I-Ion. Mr. 1Re,B: The high spots are briefly these: This new officer will 
be known as inspector, and will bc appointed Iy the Minister and hold office 
subject to good behaviour. He may be removed by order in council for mis- 
behaviour, incapacity or incompetence. It shall be the duty of that inspector to 
examine the head offices of all banks at least once a year, and any branch that 
he may consider necessary to examine. It is proposed that the confidential 
reports which, under the present Act, are made by the shareholders' auditors 
and sent to the directors shall be sent to the inspector. They will be available. 
Then, the inspector will be given the power to examine the general manager 
or any officials of any bank under oath. Under the present Act, if a bank goes 
wrong or if there is any indication of a bank going wrong, there is no provision 
for winding that bank up until it suspends payment; that is, the Minister can- 
not step in. It is proposed under this amendment that -hen the inspector is 
satisfied that a bank is insolvent he will report to the Minister and we will 
then ask the Bankers' Association to assume responsibility and appoint a 
curator. That will automatically stop a bank from going on and taking 
deposits. Generally speaking, that is what is invoh'ed in this proposed amend- 
ment, but incidentally, I would like to say--it is not in here that it has been 
suggested that the inspector's report to the Iinister should be available to 
the president of the Bankers' A.sociation. I would like time to consider that 
feature of it, and I should also like the Committee after this had been printed, 
to consider the amendments we propose and also that feature which I have just 
suggested. It is also proposed that the banks shall be assessed on the basis of 
their assets for the cost of this inspector and of the officials who will be 
connected with that feature of the work. I suppose that this will go on the 
records and will be discussed at a future meeting. 
Mr. W. F. hIAcLEAN: I would like to ask the Minister in connection with 
this matter whether the proposed inspector is to be independent of the Finance 
Department and as a matter of duty will inspect all the banks when he sees 
fit, and not wait for any instructions frown the Minister. 
I-Ion. Mr. to: Yes, it will be his duty to do bank inspection, but he will 
be an official of the Finance Department. Some department of the Government 
must be responsible, and the Finance Department is responsible in these 
matters. As a matter of fact, under the Act. it is the Minister of Finance who 
has to stand criticism if anything goes wrong with  bank. 
Mr. W. F. MACLEAN: In the United States, they have an inspector, an 
examiner of banks, who is independent of the Treasury Department. 
1 --32 

14-15 GEORGE V, A. 1924 
The CttAIRMAN: NO, Mr. Pole distinctly stated to the Committee that 
he himself as the Chief National Banks Examiner was an official of the 
Treasury Department. He is not only under the Secretary of the Treasury, 
who is their Minister of Finance, but he is also under an official who is the 
Comptroller of Currency. The Comptro.ller of Currency is under the Secretary 
of the Treasury. 
Hon. Mr. STEVENS: IS this to be presented to the Committee in the form 
of a proposed draft amendment to the Bank Act? 
The CHAmMAN: Yes. 
Hon. Mr. STEVENS: Will it be introduced into the House first, or considered 
here first? 
Hon. Mr. ROBB: I am submitting it to the Committee for consideration 
before submitting it to the House. 
Discussion followed. 
Mr. SHAv: I would like to ask the Minister if these two proposed amend- 
ments, one providing for inspection, and the ,other giving the Minister power 
in the event of a bank's insolvency to close that bank are to be taken as the 
Minister's only achievements in the matter of amending the Bank Act? Has 
he taken up, for instance, the matter of precedence of Government deposits, 
or any other of the many issues that have been raised with regard to the safe- 
guarding of deposits? 
I-Ion. Mr. ROBB: When these are printed tomorrow, the hon. gentleman 
will be able to iudge for himself. 
Mr. SHAw: I am asking the Minister now. Of course, if he wants us to 
wait until to-morrow-- 
Hon. Mr. Ro: There is nothing here of the nature you suggest. 
Mr. SAw: Then the Minister does not propose any further amendments. 
The CHhIRMAN: The Minister has said that the report is tabled and will 
appear in the proceedings of the Conunittee to-morrow. Other subjects in 
the various resolutions on our order paper are not covered by this amendment, 
but that does not mean that the Minister will not propose any further amend- 
Discussion followed. 
Mr. W. F. hI.CLEtN: I would like to ask the Minister whether under this 
legislation he proposes to co-ordinate a number of the offices in connection with 
the Finance Department, somewhat similar to the co-ordination of a number 
of offices under the Comptroller of the Treasury at Washington. For instance, 
when he is appointing an inspector of banks, I would like to see him go a 
step further and have that insDector--a man to whom I would be prepared to 
pay a salary of $25,000 or $30,000--take charge of the Government issue of 
notes, take charge of rediscounting for the banks, and have a regular organiza- 
tion for that purpose. Perhaps he could take charge of the Mint also and take 
charge of the banks' issue of currency as well as of inspection and the Mint. 
He should be an officer responsible more to Parliament and the public than to 
the Department. The public would then have more confidence in him. He 
would also take charge of another important thing, which has disappeared. 
The greatest savings bank in Canada for a long time was in the office 
of Deputy Receiver General. I understand that the Deputy Receiver General 
in the Maritime Provinces and also in British Columbia took deposits. In 
Toronto we have the best savings bank we ever had in the office of the Deputy 
Receiver General in that city. But for some reason or other he ceased taking 
deposits some years ago. I would like to ask the Minister if the Deputy 

14-15 GEORGE V, A. 1924. 
special information furnished by the banks has been of such a nature that I can 
cover it very well and fon a very sound opinion upon the subject within the 
ten days. 
Q. You spoke of special information furnished by the banks. Who required 
that information? A. The Minister. 
Q. On your suggestion or recommendation?--A. I offered the Minister advice 
on the subject, yes. 
Q. You said you wanted certain information from the banks?--A. Yes. 
Q. And he asked the banks to furnish that information, and they furnished 
it, and you examined it?--A. Yes. 
Q. And you came to certain conclusions after the exanination of that 
evidence?--A. Yes. 
Q. Wauld you be prepared to give this Committee some information regard- 
ing the situation as you found it, if we sat in camera?--A. With the Minister's 
consent, yes. 
Q. Have you made any investigation as to the comparative bank failures 
in Canada and in other countries, say during the last ten or twenty-five years? 
--A. I am aware generally of what every one knows as to the extent of bank 
failures in the United States and in Canada. 
Q. I understand there has been some dispute as to the facts in that 
connection, and I ask you whether you pers.onally made any investigation?-- 
A. I have not made any investigation of the situation in the United States. 
All my information as to that comes from official reports. 
Q. Do you think it would be wise that the the s-hareholders of banks 
should have further information regrding the banks' affairs, such, for instance, 
as was suggested by the amendment of last year which I read to Mr. Neill the 
other day. I do not know whether you were here or not. For instance, 
requiring that 
" That profit and loss statement shall include and show on the one 
part the amount of 
(a) Balance of profit and loss account carried forward from previous 
(b) Rebate of interest on unmatured bills as at close of previous 
(c) Gross profits, including balances of all interest, commission, 
exchange and other revenue-producing accounts; 
(d) Premium on new stock sold; 
(e) Bad debts recovered, previously written off, and the statement 
shall include and show on the other part; 
(a) Expenses of managenent and operation; 
(b) Interests paid on deposits; 
(c) Interest reserved on unmatured bills; 
(d) Amount written off bank premises; 
{e) Amount transferred to appropriation account for losses; 
(]) Amount transferred to officers' pension fund; 
(g) Sundry appropriations or disbursements not included under 
foregoing head's, and to be shown in detail; 
(h) Dividends declared {specifying number and date); 
(i) Amount transferred to rest account; 
(j) Balance at credit of profit and loss account." 
This, you will observe is some additional information, which, it was 
suggested last year, should be included in the annual statement for the informa- 
tion of shareholders and the public. What is your judgment as to the amplifica- 
[Mr. George Edwards.] 

Q. Do you think that that is a matter vhich should engage the attention 
of an inspector?---A. I do. 
Q. If he found that too much in proportion was invested in premises, it 
would be a matter for remonstrance?--A. Both that and the question of 
whether there was a sufficient writing down of the premises to eventually bring 
the bank out of that position. 
Q. I take it that in your judgment, an inspector ought to see that too great 
an amount is not invested in bank premises and that the writing off is proceeded 
with at a reasonable rate?---A. Yes. 
Q. Do you know from your examination of the returns furnished by Cana- 
ians banks--those special returns--whether or not the banks which have lost 
deposits have been able to reduce their losses in comparison, or have had to 
depend on advances from the Government? A. I am not prepared to answer 
Q. Itave you looked into the matter at all? A. I have not. You will 
understand that anything I have done has been done under direct instructions. 
I have not been given any roving commission or anything of that kind: 
Q. Your instructions have been specific?--A. Yes. 
Q. Can you give them in a general way? Itave they been to ascertain as 
to the solvency of Canadian banks?--A. They have been to consider the in- 
formation that comes to the Minister other than in the form of special informa- 
tion, and to advise him respecting the position thus disclosed. 
Q. I presume the purpose is to discover whether or not there is any 
serious danger to any other banks?---A. Practically to see whether they are 
solvent or otherwise. 
Q. You vould not care to express any opinion in public on that matter?--- 
A. No, not without the Minister's consent. 
Q. Itave you looked into the proportion of salaries and expenses in Cana- 
dians banks compared with banks elsewhere?A. No, I have not, because 
the information is not now furnished by the Canadian banks. 
Q. Do you think that information should be furnished?---A. It should 
be available, yes. In my reply to your first question about particulars in the 
profit and loss schedule, I would say that the Minister should have all that in- 
formation. I am not at present expressing any opinion as to how much of it 
should be available for the shareholders. 
Q. You think that the fullest possible information should be given to the 
Minister confidentially?--A. Yes. 
Q. You do not know of any payments of dividends in Canada, out of 
capital during the last few years? 
hlr. HEALY: DO yOU mean authorized capital, or authorized capital plus 
hIr. GOOD: I should have said out of capital, plus reserve. 
The CH.aim.x: Not authorized, but paid-up. 
By Mr. Good: 
Q. Do you know of dividends being paid out of reserve which the capital 
had not earned?--A. Yes, in the Merchants Bank case dividends were paid 
out of reserve. 
By Mr. Marler: 
Q. May I interject a question there. There is no real reason why dividends 
should not be paid out of reserve?--A. Not at all, if they care to take the re- 
sponsibility for doing so. There are certain limitations upon dividends. Of 
course, they must have thirty per cent of reserve in order to declare a dividend 
over eight per cent. 
[Mr. George Edwards.] 



very small percentage compared with its capital of 83,000,000. 

That was 

By Mr. Morin: 
Q. Have you the figures for the Bank of St. Hyacinthe? 

By Mr. Bcoit: 
Q. Or the figures for the Banque de St. Jean?---A. That bank had a capital 
of 8500,000. 
Mr. MARLER: There is one question I would like to ask before the witness 
leaves that particular point. 
An Hon. MEMBER: Give us the list of banks that you have. 
WITNESS: I will put it in. I obtained this information after I had been 
examined previously on the subject. The Banque de St. Jean was suspended in 
1908. It had a subscribed capital of 8500,000. The double liability collected 
amounted to 8161,000, about one-third. The Banque de St. Hyacinthe-- 

By Mr. Bcnoit: 
Q. What was paid to the depositors? 
The CHAIRMAN: Let the witness give the amounts collected on the double 
liability and the percentages; then we will ask questions. 
Mr. MARLER: Before these questions are asked, I think hIr. Edwards will 
agree with me--is it not the case that the double liability, irrespective of per- 
centages or amounts, was simply collected in many of these cases to the extent 
that it was necessary to collect. In other words, a small amount may have 
been collected because that was all t.hat was necessary. Was that not the case 
in the Sovereign Bank? I do not want any misapprehension to arise. 
The CHAIRMAN: I would suggest that Mr. Edwards give us the figures and 
then we could perhaps supplement his information by putting questions. 
WITESS: I think it very important to understand the question which Mr. 
Marler has put because it may be so in soine of these banks with which I am not 

By the Chairman: 
Q. Have you the figures for other banks? 
Bg Mr. Benoit: 
Q. What about the Banque St. Hyacinthe? A. It had a subscribed capital 
of 8504,000 and the payments on account of double liability amounted to 
$156,000. In the case of the Farmers Bank---this is a test case. 

By the Chairman: 
Q. In what year? A. 1910. Its subscribed capital was 8584,000, and the 
double liability payments to March 12th, 1924 amounted to 8314,000, a little 
over 50 per cent. The Bank of Vancouver, which is a pretty bad case, suspended 
in 1914, and had a subscribed capital of 8587,000. The double liability payments 
to April 13th, 1923 amounted to 8148,000. 
Q. In respect to those banks, could you tell us whether those collections 
were the total that could be collected, or whether they were simply what it 
was necessary to collect?---A. I cannot answer that question in all cases, Mr. 
Chairman, yet it is important. 
Q. Could you get it and give it to the Committee? 
[Mr. George Edwards.] 

14-15 GEORGE V, A. 1924 
By Mr. Benoit,: 
Q. In the case of the Banque de St. Hyacinthe, only one-half of the 
authorized capital was phid up and I would think that your figure covers 
payments on the unpaid capital?--A. That is not my information, but I will 
note that and endeavour to make sure of it. 
The CH.RAN: Your suggestion is that the total liability was not called. 
Mr. BENOIT: It was called, but the amount given by the witness covers the 
balance due on the unpaid proportion of the shares. 
B g Mr. Spencer: 
Q. Can you give the Committee an idea of what has been collected from 
the double liability in the case of the Home Bank?--A. Not yet, it is still in 
the early stages. 
Q. The collection has been rather poor up to date, I believe?--A. I think 
Q. What is to prevent shares from being transferred to men of straw 
previous to a bank's collapse?--A. Nothing. 
Q. What is to prevent a shareholder being so heavily in debt to a bank 
as to off-set his value as a shareholder to the depositor in double liability?--A. 
Q. Were the Home Bank auditors qualified mcn?--A. The Home Bank 
auditor was not a chartered accountant; he was not a trained accountant in 
the sense that I understand it. 
Q. Were they as well qualified as the auditors who audit other banks?--A. 
The auditors of other banks are men who are practised in accounts and are in 
daily contact with commercial and other forms of accounts. In the case of 
the Home Bank the auditor was occupying a position of an academic sort; he 
was employed at a college in Toronto, and I do not see how he could possibly 
have the opportunities for acquiring the knowledge by personal cont_act wi.h 
business sufficient to enable him to audit properly that bank. 
Q. Did they have the same auditor from 1916 until 19237--A. Yes. 
Q. Was he a member of the Chartered Accountants?--A. No. 
Q. Do the banks have to inform the Minister of- Finance as to who they 
are having to inspect them?--A. As distinguished from an audit? 
Q. No, when  bank engages auditors to look over th,eir books, do they 
have to notify the Minister of Finance and give the names of the men they have 
engaged?--A. I think it goes to the Minister of Finance in the form of the 
public statement which has to be certified and furnished to the Minister. 
Q. The Minister of Finance, since 1916, would have a knowledge of who 
was auditing the Home Bank accounts?--A. Oh yes. 
Q. And with that knowledge they saw fit to let them go on auditing the 
accounts from 1916 to 1923, thinking it was in the public safety?--A. I do not 
know how the Minister could know very much about the professional com- 
petency of the man who was appointed to audit the bank. Under the revision 
of 1913, there were no qualifications provided in the Act whatever, as to who 
might be an auditor. Conceivably, he might not even be an accountant. But 
if his name was found in the list, fr any reason, he would be eligible for 
appointment as auditor. I think they were all accountants. 
Q. I take it that the suggestions put forward by the Acting-Minisber of 
Finance this morning, with regard to the appointment of an inspector general 
if a man of that calibre had been engaged to audit the books of the banks the 
carrying on of the Home Bank would have been impossible?--A. Would you 
lust ask that question again, please? 
[Mr. George Edwards.] 

Q. If the recommendation put forward to this Committee by the Acting 
Minister of Finance this morning had been in effect, and we had had an in- 
spector general as outlined by him, would it have been possible for a man 
such as you outlined to audit the Home Bank's accounts for many years without 
being reported to the Minister of Finance? Would an inspector general have 
allowed him to carry on? A. I would say absolutely no. 
Q. What was to stop any other bank from employing a similar man to 
audit its books?--A. There is now a provision-- 
Q. Brought in last year, but up to 19237 A. None. 
Q. There is no reason why any bank in Canada could not have been 
audited by a man similar to the man who audited the Home Bank's books up 
to 19237--A. None wlmtever. 
Q. Did the Home Bank send the regular returns to the Minister of Finance? 
---A. Yes. 
Q. Were these returns examined by Government officials?mA. I cannot 
say personally. 
Q. You need not answer this question if you do not want to, but do 
you understand that they were not examined, otherwise pigeon-holed?--A. I 
would not care to say that; I do not know. 
Q. If they did examine them, how did the weaknesses of the bank escape 
notice since 1916?---A. I think the forms of the returns did not lend themselves 
to an intelligent judgment upon the bank's affairs. 
Q. Then why did the Government--I will not say any particular Govern- 
ment,--not have those returns made by the banks and sent to the Finance 
Department cxamined in the interests of the public?--A. I cannot answer that. 
Q. It is the fact that they have been sent in, and that although there were 
weaknesses in our Canadian banking system as evidenced in the Merchants 
Bank, the Home Bank, and the Banque Nationale, those returns were not 
checked sufficiently so that the Government could warn the public? A. I think 
one of the theories regarding one of those returns is that if the information is 
made public, every one will have an opportunity to form an opinion as to the 
position of the bank. In other words, publicity rather than honesty of judgment 
in the Department. 
Q. In the past we have had a list of returns in the Canada Gazette which 
meant nothing. We were under the impression that those returns were checked 
up by the Department, and that if there were any in the system 
they would be looked into by the Finance Department. We know perfectly 
well now that those returns may have been good or false returns--in some cases 
they were false, and therefore the public have been under a great handicap 
because those returns were not examined closely. Do you agree with that? A. 
To some extent, but the state of the law is partly responsible for that. 
By Mr. Good: 
Q. Is it your contention that the returns themselves were ineffective or 
deficient?---A. I think they were deficient, and I think the state of the law, as 
developed at the trial of the Merchants Bank case, showed that the information 
furnished by those returns was ncessarily defective information; that is to 
say, it took account of books rather than of facts. 
By Mr. Spencer: 
Q. The returns were not only defective, but they did not safeguard the 
public interest because they were not inspected?---A. I would not say because 
they were not inspected, but they did not safeguard the public interest. 
Q. If they were inspected, the deficiencies in the returns were not recognized 
by whoever inspected them?---A. I think the answer is--take the Home Bank 
[Mr. Geo'ge Edwards.] 

14-15 GEORGE V, A. 1924 
returns, there is nothing in the Home Bank returns, month by month, to the 
Department under the provision of the old Act, from which officials of the 
Finance Department would be able to form an opinion as to the weakness of a 
Q. You will agree then as to the absolute necessity of having, not only a 
more thorough public inspection, but a Government inspection, outside of the 
banks' inspection, as outlined by the Acting Minister of Finance this morning? 
--A. I think there should-be some additional information available to the 
Department, which is obtainable only by an appointed officer. 
By Mr. Garland: 
Q. Was any complaint ever made to the Department of Finance regarding 
the qualifications of the auditor of the Home Bank?---A. I am not aware of 
By Mr. IV. F. Maclean: 
Q. In connection with deposits in the bank, is it a fact that the notes 
issued by a bank are a priority on the deposits?---A. They are a priority on 
the assets. 
Q. If we had a Government currency in place of the bank note currency, 
there would not be need of that responsibility on the depositors to redeem 
notes issued by the bank?---A. I cannot see any difference in the case of Gov- 
ernment currency. A bank would have to pay for it and that would take so 
much of the assets out of the bank. 
Q. If they paid for it and got legal tender and deposited it with a so-called 
Government reserve hank, and the bank notes came out of another place-- 
when these bank notes come out they have to be paid out of depositors' money? 
--A. The bank has to have a corresponding amount of assets to take care of 
that situation. 
Q. Would it not be better in the interests of banking, in *he interests of 
shareholders and in the interests of depositors that a Government currency 
should take the place of the bank note currency which exists now and which 
is a charge a.gainst the deposits in the bank?---A. I do not think it would make 
any difference. 
Q. Would it be better for the public?--A. I do not think it would make any 
difference to the public. 
By Mr. Spencer: 
Q. I would like to take-- A. May I quote from the Act for hlr. Maclean's 
benefit, Section 61. 
"Except as hereinafter provided, the total anmunt of the notes of 
a bank in circulation at any time shall not exceed the aggregate of- 
(a) The amount of the unimpaired paid up capital of the bank-- 
By Mr. Maclean: 
Q. Did that take place in the case of the Home Bank?---A. You said that 
that was not in the lw at the present time and I am pointing out that it is. 
Q. Was it observed in the case of the Home Bank? Were they not issuing 
notes for years against an impaired ca.pital and were they not doing an illegal 
thing?--A. That is another question. I was simply dealing with the suggestion 
that it was not in the Act. 
By Mr. Coote: 
Q. May I ask you to explain that word "Unimpaired," that is capital 
[Mr. George Edwards.] 

gest for the public? Does he not think there should 'be an official like the 
Comptroller of Currency in the United States? 
WITNESS: I think a Government-appointed official such as I have indicated 
would be able to perform these duties. 

By Mr. Cootc: 
Q. Just to make it clear to some members who I think are not very clear 
on this point, would Mr. Edwards tell us whether it is a fact that bankers 
really order these notes to be printed to any amount they desire for any par- 
ticular use?--A. I do not know what the fact is, but I would assume that they 
exercise the functions described there. I have no access to the Canadian 
Bankers' Association's affairs at all. 
Q. You have access to the affairs of some of the individual banks. Is it not 
a fact that they have notes printed very much in excess of the amount they 
are allowed to issue?--A. Yes, necessarily so. 
Mr. MARLER: Printed, not issued. 
WITNESS: Printed, but not issued. The restriction is on the issuing, not 
on the printing. 

By Mr. Cootc: 
Q. Is it a fact that the banks do issue at times more notes than they are 
allowed to under the Act?--A. Occasionally. 
Q. Is it a fact that. under the present procedure a bank may exceed that to 
quite a large amount without the Dcpartment of Finance being aware of 
A. No. 
Q. You say it would not be possible?--A. I think it would not be 'possible. 
Q. In what way would the Department of Finance be able to know that the 
bank had issued more than it was allowed to?--A. By its own reports. 
Q. By the bank's own reports?--A. Yes. 
Q. Have you known banks to furnish false reports to the Government? A. 
Not in that respect.. 
Q. In any other respect?--A. Oh yes, the Home Bank did, I think. 
Q. Would there not be nmre temptation to furnish false reports under this 
particular item than in some things that they do furnish?--A. I cannot say any- 
thing about the temptations of the banks. 
Q. Would it not be quite as possible to furnish false reports in this regard 
as in any other?--A. It would be possible. 
Q. Is there not a great temptation to over-issue when they have in their 
vaults a larger supply of these notes-than they are allowed to have?---A. The 
temptation to a good straight-forward banker would be nil; to a banker whose 
institution was in a precarious position, he might be tempted that way. 
Q. Is it not rather a dangerous privilege to give to the banks to print rlotes 
and not limit them to the amount which they can print? A. I do not see any 
particular danger about it. 
Q. If you had to examine the affairs of a bank that had become insolvent, 
and you found an excess issue of say $1,000,000 worth of notes which they had 
issued on the last day they were open--A. I did not find that. 
Q. Would you not think that this is a dangerous privilege that is given to 
the banks? A. It might lead to that conclusion. 
Q. Do you think that the public of Canada have any idea that the banks 
have the privilege of printing notes, practically, without any limit?--A. I do 
not suppose that the public think very much about it. If they examined 
the situation, they would find that it is necessary for a bank to have an excess 
quantity of notes printed. 
[Mr. Gorge Edwards.] 

14-15 GEORGE V, A. 1924 
Q. Do you know of any other banks in the world that have that privilege, 
outside of Canadian banks? A. I have no information at the moment. I under- 
stood there are some banks in Europe, but I cannot answer the question of my 
own knowledge. 
By Mr. Irvine: 
Q. You say it is absolutely necessary under the Canadian system to have 
an excess of notes printed? A. I say that a bank has to have a supply available 
of its own notes beyond the amount in circulation. If it was not so, it would have 
no currency at all with which to transact its daily business. 
By Mr. Spencer: 
Q. Necessarily of its own notes?---A. If a bank has the privilege of issuing 
its own notes up to the amount of its capital and intends to take the fullest 
lawful advantage of that privilege, it is necessaT to have an excess quantity of 
notes printed. 
By Mr. Good: 
Q. So tlmt they would not ship the notes from one place to another? A. The 
Bank with a large number of branches would bare to have a reserve supply at 
each of its branches. 
By Mr. Coote: 
Q. A bank can issue more notes than it is privileged to issue under the Act 
before the head office is aware of it?---A. It might happen. 
Q. It has often happened?--A. It has happened. 
Q. I intend to move in this Committee that the Bank Act be amended by 
providing for a limitation of the amount of a loan which can be made by any 
bank to any person, firm or corporation to an amount not exceeding 10 per cent 
of the paid-up capital and reserve funds of the bank. I would like to ask Mr. 
Edwards whether he remembers a motion along somewhat similar lines last year 
and whether he opposed it at that time?--A. I think I offered this opinion, that 
a rigid limit of that kind might hamper a very sound and legitimate business 
Q. In connection with the Merchants Bank case, if such a clause as this had 
been in operation at that time, is it not probable that the Merchants Bank would 
not have got into difficulties?--A. In order to answer your question it is neces- 
sary to recall all the characteristics of that large loan which the Merchants Bank 
made. I understood there that that loan had reached those proportions by rea- 
son of unauthorized acts of the local manager of the Montreal branch, very 
Q. Do you think he would have had power to make a loan of this size 
if this provision had been in the Bank Act?--A. Well, unauthorized things 
have been done before. I do not know lust what would have been in that case. 
Q. Would it be proper to draw the inference from your statement that any- 
think we put in the Bank Act is of no value because it may be violated by a 
manager?--A. No, I think there is a sincere intention on the part of the banks 
to observe the conditions of the Act. 
Q. Now, in connection with the Banque Nationale, would such a provision 
have not probably saved that bank from the difficulties in which it found 
itself?A. From the little I know about the outstanding circumstances that 
made the difficulty for the Banque Nationale, the increase of the loan there 
was with the hope that it would pull the concern through. 
Q. And instead of pulling the loan through, it pulled the bank under?--A. 
It has happened, hIr. Coote, that support given to a business concern under 
[hIr. George Edwards.] 

such circumstances has pulled the business concern through. It has also 
happened that such support was not sufficient to pull it through. There is no 
absolute rule for determining the advisability of supporting such concerns. It 
must be in the iudgment of the directors, the men who understand the position 
and are presumed to have examined all the circumstances. 
Q. I would like to ask the same question in regard to the Home Bank. 
Was the Home Bank wrecked by loans larger than this limit I propose?mA. 
Both large and of bad quality. 
Q. But if loans limited to that size had been transacted, is it not quite 
probable that the Home Bank might still be in operation? A. If the Home 
Bank had confined itself to legitimate, good banking business along the lines 
of loans, it might have been in existence. 
Q. Would you say that it is advisable to put such an amendment as this 
in the Bank Act in view of your experience in examining the affairs of defunct 
banks?---A. I would be prepared to try it out and see what sort of amendment 
could be suggested which would not hamper the banks unduly in their 
legitimate business. 
Q. We are chiefly concerned in this inquiry with the safety of depositors. 
Would not this add, to the safety of depositors? A. It would in this sense: 
The more widely the risks of a bank are distributed, the safer the depositors 
Q. Is it fact that some of our present banks have more than 50 per cent 
of their paid-up capital tied up in what might be termed frozen loans!---A. I 
cannot say whether that is so or not. 
By Mr. Marler: 
Q. Did I understand you to say that the banks had frequently over-issued 
as regards notes? A. Frequently, but accidentally I consider. I do not think 
it has been intentional in any case. 
Q. As regards intentional over-issuing, that has not occurred at all? A. 
I do not think the banks have intentionally over-issued, certainly not within 
my knowledge. 
Q. Really a pure accident?--A. A pure accident. 
By Mr. Irvine: 
Q. I understood Mr. Edwards to .av when being cross-examined by Mr. 
Coote that the over-issue of notes was a necessity on the part of the banks?-- 
A. The over-printing of notes is a necessity. 
Q. What is the use of printing if they are not to be issued when required? 
--A. Take a bank with 500 branches, each one of these branches will have to 
have a certain amount of the bank's own currency in its own vaults to take care 
of is own transactions across the counter. If it has not its own notes, it 
cannot cash a cheque except in legal tender. 
Q. The point I am trying to make is--A. As lon as their own notes are 
in their own possession, it is so much waste paper. It only becomes an 
obligation when they issue the noes, it is a promise to pay. 
Q. It is a promise not to pay at the present moment. The point is they 
are printed with the view of being issued and being needed, else they would not 
be printed at all?--A. An excess quantity is printed with the view of issuing. 
By Mr. Marler: 
Q. An excess quantity printed but not issued?A. :No, printed with the 
view of being able to supply them to all its branches. 
[Mr. George F-lwards.] 

Government bonds or municipal bonds, etc., no. It is the bank's own property 
which is pledged, or it might be grain paper, we will say, and this would be 
the obligation of an individual customer of the bank. 
Q. In that case the word "re-discounting" would be fairly accurate?--A. No. 
There will be a volume of these grain securities or notes placed with the 
Treasury Board, or its agent, and advances will be made on margin, as Mr. 
Spencer has suggested, perhaps 85 per cent or 90 per centI do not just know 
what the percentages are--against the sum total of these obligations. The 
individual obligations are not re-discounted. An advance is made against the 
securities when they are pledged. 
By Mr. Irvine: 
Q. Would city bonds be taken in that case?---A. Yes, under the Finance 
Act of 1923. 
Q. Take, for instance,--I do not know whether I should mention any 
particular city. 
The ACTinG CHAIRMAN: Call it "City X". 
By Mr. Irvine: 
Q. The bonds of "City X" in a certain year were worth 100. To-day they 
are worth 50 and are still deposited with the Treasury Board. Do you think 
that is a safe deposit?--A. I suppose in that case the Treasury Board would 
probably say that 75 per cent of the market value might be loaned against 
By Mr. Euler: 
Q. If they depreciate after they have been deposited is there any action 
possible?--A. That has to be looked after by the Treasury Board. They could 
call for further securities, under the regulations. 
By Mr. Spencer: 
Q. Can any security pledged to a bank by their customers, either indi- 
viduals or a corporation, be turned over to the Treasury Board to get advances 
on? A. It would be within the legal right, but I do not think it is used in 
By Mr. Maclean: 
Q. Is there any re-discounting? A. :No, not as that term is used; it is 
"advances on security." 
By Mr. Euler: 
Q. What are the natures of the securities? A. There are five classes, begin- 
ning with Dominion Government securities, municipal securities, grain receipts, 
documents representing grain, and trade paper representing agriculture or com- 
merce in any form. 
By Mr. Spencer: 
Q. As I understand it, commercial notes signed over to the Finance Minister? 
--A. Yes. 
Q. And accepted by him?--A. Yes. I might add though that the volume 
of advances in each class of securities has been relatively small in the past. 
The general advances have been against Government securities of the highest 
Q. We know that Dominion notes are issued to the bank, but I understand 
it is not their custom to put them into circulation? A. The bank gets what 
are called "large legals;" they take their advances in large legals. 
[Mr. H-ry T. Rosa.] 

14---15 GEORGE V, A. "(924 
Q. For convenience? h_. Yes. These are employed either in making 
clearing house settlements between the banks, to discharge demands upon the 
banks in connection with their business, or they may be deposited in the Central 
Gold Reserve. I think the bulk of them probably are used for clearing house 
Q. Those are placed in the Central Gold Reserve they have the option of 
issuing dollar for dollar their own notes? A. Yes. 
Q. I understand the reason for this is to enable the bank to have a large 
number of printed notes through their various branches which could not come 
into circulation until they were passed over the counter to the public in case 
of a run on the bank?--A. :No. If I may say so, I think you are confused with 
something else. The bank's own notes up to its capital are not in that classifica- 
tion at all. 
Q. :No restriction there at all?---A. :No. 
Q. I am talking about notes issued against the Dominion notes put in the 
Central Gold Reserve?---A. Yes. 
Q. Is it a fact that the banks hold notes that are ready for issue but are 
not in circulation until they pass over the counter?--A. Yes. 
Q. I understand that was a fact?--A. Yes. 
Q. These are private bank notes to enable the bank to meet a run on the 
bank, and when they are issued it is an extra quantity of notes, and they would 
at once redeposit with the Treasury Board security to cover it.--A. :No, that 
operation could not take place. 
Q. What happens if these notes are issued in any large amounts?--A. The 
bank must have the notes of the Dominion in the Central Gold Reserve before 
it can pay out any of its own notes. It cannot wait and cover the transaction 
afterwards by the deposit of Dominion notes in the Central Gold Reserve. 
Q. Then you mean to say that although you are paying 5 per cent on 
Dominion notes put in the Central Gold Reserve, you are not using them 
dollar for dollar in the circulation of your own notes?--A. I do not quite follow 
you. Just state that again. 
Q. You are paying 5 per cent on all Dominion notes that you have against 
security?--A. Yes, under the Finance Act. 
Q. Do you not use that privilege to the full in issuing your own notes? 
--A. The bank tries to get as close to the limit as possible. It does not want 
to pay 5 per cent any longer than it has to. It wants to minnimize the difference 
between deposits and circulation. 
Q. You admit the banks keep a quantity of notes behind their counters 
which do not come into circulation? A. Yes. 
Q. And therefore, no charge is made upon them?--A. I do not understand 
Q. You have a charge of 5 per cent on everything you put into the Central 
Gold leserve, against which you issue private notes?--A. Yes. 
Q. What quantities are kept ready for circulation, which does not actually 
go into circulation?--A. That statement which the Association gets out every 
month shows the quantity of notes which the bank has in its possession unissued 
--quite a large volume. 
Q. There can be an unlimited non-issue?---A. :No limit to that. There is 
a very. definite limit to the issue, though. 
Q. leferring to Section 61, sub-section 2; what steps do you take to see 
that the bank--speaking now for the Bankers' Association--do not over-issue 
more than their unimpaired paid-up capital?--A. The Association has to depend 
upon the returns made by the particular bank to the Association, in the first 
instance, and there is, in addition to that, the inspection of which I have told 
[Mr. Henry T. Ross.] 

on account of the illegal issue of currency. You say tile Bankers' Association had 
no knowledge of the condition of the Home Bank?---A. The Bankers' Association 
had no knowledge, no. 
Q. Had any members of the Association knowledge?---A. I cannot say. 
Q. I suppose that the mem'bers of the Bankers' Association knew, as every 
one else knew that the Home Bank had mortgaged all its real estate to Strauss 
& Company of New York?--A. I suppose that it was public knowledge they 
knew of it in the way that everybody else did. 
Q. I infer that because when anybody else gives a mortgage they know 
about it?--A. It was published in the records. 
Q. And when one of their own members gave a mortgage of all their real 
estate, I imagine that the other members knew about it?--A. It is quite possible, 
probable, I think. 
Q. Did that not lead them to inquire whether the assets of the Home 
Bank had gone?---A. I had not knowledge. 
Q. Should it not have?--A. I cannot say. 
Q. Then this is the condition, and we 'have had no renedy suggested, that 
a bank without capital can issue to the extent of what its capital appears to be 
on paper and no one has any control over it?--A. A bank must have had capital 
in the first instance. 
Q. Oh, yes?---A. It is possible under the existing law for a bank to have 
had capital and to lose it and to continue issuing its notes against that capital. 
Q. To the loss of the final man, who is the depositor?---A. To his loss, if 
you so put it. 
Mr. W. F. I.CLE&N: There is no protection under the existing law. 
By Mr. Healy: 
Q. To put it as Mr. Maclean puts it, there is no protection under the 
existing law for the depositor?--A. If the assets are sufficient, there is ample 
Q. We have just gone through a little experience, where the assets were not 
sufficient? A. In this particular case, yes. 
Q. And the limit may be $3,000,000, $4,000,000, $6,000,000 or $10,000,0007 
--A. Any supposition you choose to make. 
Q. Depending on the paper capital of the bank. What remedy has the 
Bankers' Association to offer for that condition?--A. I do not think it is neces- 
sary under the law to make any suggestion or offer any remedy. 
Q. They are perfectly satisfied with the condition?--A. I have no know- 
ledge of what they think of the question you put. 
Q. I thought they act through you?--A. No, I cannot say that they take 
quite that position. 
Q. They are not worrying about this position which exists?--A. They think 
there is no obligation upon them to pay somebody else's debts. 
Q. But this duty was assumed cheerfully by the Bankers' Association? 
--A. It was put upon them by statute. 
Q. And they accepted it?--A. They had to. 
Q. And they have carried it along for years?A. Yes. 
Q. When they accept a duty of that kind and do the work put upon them by 
the country, do you think there is no obligation upon them without regard to 
who suffers?---A. If they discharge their statutory obligations, I think they have 
done their duty. 
Q. Do you think that is a satisfactory condition?--A. I would not like 
to say. 
Q. What do you think after this morning's evidence?--A. That is a per- 
sonal opinion. 
[Mr. tem'y T. Ross.l 

the bank. Should not the responsibility be on the Minister or upon his Deput', 
for instance?--A. The Minister is nominally responsible to see that a bank's 
capital does not go by the board, and that a bank does not carry on as the 
Home Bank carried on. 
Q. Meantime, there is no protection for the publ';c in the matter of the 
issue of notes by a bank?---A. That raises the large question as to whether 
the note-holders have a superior right to the depositor. It is generally con- 
ceded that the note-holder has a superior right to the depositor. 
Q. Why should he have?--A. He is an involuntary creditor. 
Q. You said that a bank had the right to be a member of the Bankers' 
Association?--A. :No, it has not the right; it is made a member by statute. 
Q. Then it is a member?--A. Yes. 
Q. Is it also a member of the clearing house?--A. :No. 
Q. Who grants the privileges of the clearing house to an individual 
bank?--A. The clearing house is a voluntary organization entered into by the 
banks in a particular city, and the members determine who shall have the 
privileges of the clearing house. 
Q. And they examine into the standing of the banks as to whether they 
ehould be allowed the right to the clearing house?--A. I think that any bank 
which is carrying on under the Bank Act has always been conceded the clearing 
house privileges. 
Q. Was there ever a refusal of membership in the clearing house to any 
bank heretofore?---A. I have no knowledge. 
By Mr. Hanson: 
Q. I should like to ask Mr. Ross a question with respect to the control 
of the issue of bank notes. Are there not provisions in the Bank Act which 
give the Government a certain control over the issue of the banks and certain 
penalties with respect to over-issue?--A. Yes. 
Q. Subsection 16 of section 61 and the penalty clauses contained in section 
1357--A. Yes. 
Q. Is it within your knowledge that the Government does exercise control 
under these sections?--A. Yes. 
Q. And imposes penalties on the banks if by inadvertence or design, it 
may be, they have over-issued their circulation?--A. That is correct. 
Q. Is that a frequent occurrencc?--A. :Not a frequent occurrence. 
Q. Is it not the fact that the banks as a rule are under rather than over- 
issued?---A. Yes, they contrive to be well under. 
Q. Under the Finance Act of 1914, as amended in 1923, all banks have 
the power of rediscounting customers' paper. Is it usual for the banks to avail 
themselves of that privilege, or do they ask and obtain advance on the collateral 
of their own security?--A. The latter, usually. 
Q. On the collateral of their own security, usually?--A. Yes. 
Q. Do they ever avail themselves of the other option, namely the redis- 
counting privilege?--A. The banks are accustomed to get advances against 
grain paper. 
Q. That, of course, would be rediscounting, pure and simple?---A. I am 
not sure that it takes the form of rediscounting. It is the same in effect. There 
is no difference in effect. 
Q. What happens is, they put up with the Finance Department the grain 
certificates, which in law are evidences of the title of ownership, and against 
which they have made advances to customers? A. Yes. 
Q. As a rule they are certificates on grain in transit or storage?--A. Yes. 
IMr. H'y T. Ross.] 

14-15 GEORGE V, A. 1924 
By the Acting Chairmani" 
Q. Does it not mean that they rediscount the actual paper which the 
customers have given?--A. I do not think it is the practice. There. may have 
been instances, but I would say that taking the volume of business presented 
under the Finance Act, rediscounting or making advances against customers' 
paper is negligible. 
Q. It could be done?--A. It could be done. 
By Mr. Hanson: 
Q. You have instanced grain certificates. Are these in fact the property 
of the bank or merely titles to the bank?--A. I think that in law they are the 
property of the bank. Yes, strictly they are the property of the bank. The 
title passes to them; it is the actual property of the bank to do with it as they 
see fit. 
Q. Therefore, they are pledging their own property?--A. Yes. 
Mr. SLES: This raises a very important point, the question of whether 
a farmer has the right to part with his grain ticket. If Mr. Ross says it is 
the property of the bank entirely, I would like to know-- 
By Mr. Hanson: 
Q. They are offered in security or in trust? A. Yes. 
Mr. SALES: When a farmer has grain in store and the warehouse certi- 
ficate is issued, he has not parted with his grain and for the bank to pledge 
that or construe it as belonging to them is altogether wrong. 
Mr. H.NsoN: I think there is a little confusion there. I do not think 
that any warehouse man would ever pledge to the bank or sell under the certifi- 
cates grain which is in stdrage and is not the property of the warehouse man. 
The ACTIN(-CI-IhrRMhN: The question, I think, that Mr. Hanson is deal- 
ing with is where warehouse receipts represent the ownership of grain. Let 
us say it belongs to a grain merchant, and the grain merchant goes to his bank, 
borrows money and hands over the warehouse receipt. The bank, on the other 
hand, takes the warehouse receipt to Ottawa and pledges it to the Department 
at Ottawa under the Finance Act of 1923 and gets an advance, in Dominion 
bills against it. 
Mr. COOTE: Has the bank bought that grain? Does it own the grain? 
The ACTIG-ChInh: If the bank has lent money on the grain and has 
obtained the warehouse receipt, it is a document of title, I presume, and they 
can take that document of title and rediscount it with the Finance Depart- 
Mr. HAnsoN: Just the same as a bill of lading. 
The ACTING-CHAIRMhN: I would think so. 
By Mr. Shaw: 
Q. You have told us that the Bankers' Association knew nothing of the 
condition of the Home Bank before its failure, as an Association?--A. Yes. 
Q. That is correct?--A. Yes. 
Q. Was the Home Bank ever discussed at any of the Association's meetings? 
--A. I think I am quite safe in saying that I never heard it discussed. 
Q. Would you have any record if it was discussed? A. I would. 
Q. Have you examined your records to see?--A. There was not any dis- 
cussion at the meetings of the Home Bank's standing. 
Q. You have told us of the power of the Bankers' Association respecting 
note circulation? A. Note. circulation accounts. 
[Mr. Hry T. Ross.] 

Q. At the bank? A. Yes. 
Q. Where do you get that power? What subsection of section 124 gives 
you the power? Is it subsection one?--A. Yes. 
Q. That is the only power?--A. Taken together. The Association may 
make by-laws for "The supervision of tle making of the notes of the banks 
which are intended for circulation, and the delivery thereof to the banks." 
Q. Under that section, have you any authority--A. Also "The inspection 
of the disposition made by the banks of such notes", and "The destruction of 
notes of the banks." 
Q. Have you any authority under that section, or any other section-- 
has the Bankers' Association any authority to ascertain whether or not the 
circulation of a bank is legal or illegal? A. The Act provides that a bank may 
circulate notes up to its unimpaired paid-up capital. The Act further provides 
that the bank shall make a return to the Government of its unimpaired paid- 
up capital every month. That fixes, so far as the Association is concerned, 
what is the unimpaired paid-up capital of a bank, and they have no power to 
go behind it. 
Q. Would you answer my question; the Bankerd Association has no 
authority to ascertain whether the circulation of a bank is legal or illegal?--A. 
I say it has no authority to determine whether the capital of a bank is impaired 
or not. 
Q. You have been in the Department of Finance for ten years; who is the 
party in the Department charged with the particular duty of seeing that the 
banks keep within the legal limits, so far as note circulation is concerned? A. 
A return must be made by the bank to the Department of its circulation every 
Q. Who is the officer in the Department who is charged with the function of 
seeing that the banks keep within their legal limits?--A. Do you mean, is 
there anybody charged with the legal obligation to determine whether a bank's 
capital is impaired or unimpaired? 
Q. Yes.--A. There is no provision in the statute, so far as I see. 
Q. Was there any official in the Finance Department when you were there? 
--A. I am speaking of the statutes. 
Q. I am talking now of the administration of the Finance Department?--A. 
The Finance Department receives what are equivalent to sworn statements by 
the banks' officers. 
Q. Now it is perfectly clear, so far as the Home Bank is concerned, that they 
undoubtedly exhausted their capital---A. They made false returns and are liable 
to the penalties--the men who are responsible--provided in the Bank Act. 
Q. They may go to jail?---A. That is it. 
Q. But that does not save the depositors; half of the bankers in the country 
in jail would not save the depositors?---A. No. 
Q. The fact is that in the Finance Department, so far as your knowledge 
goes, no steps were taken or have been taken by anybody to see that the banks 
kept within the legal limits, so far as note circulation is concerned.--A. If you 
mean that somebody in the Finance Department should have made an assessment, 
examined every security of the bank and every obligation to see whether its 
capital was or was not impaired, there is no statutory provision for such a 
Q. Do you know now from your knowledge whether the capital of any 
existing bank is impaired or not?--A. I have no knowledge; so far as my know- 
ledge goes, none is impaired. 
Q. You have no knowledge in the matter at all. You are in the same 
position as I am in that regard?--A. I have the same opportunities as you have. 
[Mr. Henry T. Ross.] 

14-15 GEORGE V, A. 1924 
Q. Do you know who can tell us whether or not the capital of any bank in 
Canada is impaired? A. You can examine the officers of the bank, I presume. 
Q. They are the only people who could tell us? A. The auditors, I should 
Q. Do you think it is important that there should be some control, more 
adequate control than exists now over those issues, in view of those circum- 
stances? A. There has never been, so far as our records show and my knowledge 
goes, any circulation by a bank differing from its published returns. No false 
statements of the amount of circulations outstanding have ever been made, 
so far as I am aware. 
Q. That may be perfectly true, and yet it may be entirely illegal; the 
circulation may be nevertheless entirely illegal. Is that not so? A. It may 
be in the case of the Home Bank that false returns may be made as to the 
amount of unimpaired paid-up capital. 
Q. So far as you are concerned, all you do is to ascertain what the circula- 
tion is outstanding? A. That is it. 
Q. And you have no concern whether or not the capital of the bank is 
impaired, or whether or not the bank has to its credit anything in the Central 
Gold Reserve which would justify a further circulation? A. There is a return 
from the Central Gold Reserve every month as to the amount the bank has 
there to justin its circulation. 
Q. Can you tell us how much is deposited in the Central Gold Reserve?-- 
A. Something about $60,000,000. I think. 
Q. Is that more or less than last year about this time?---A. I cannot say 
Q. You have no knowledge of whether the amount there is decreasing or 
increasing? A. It is varying. I saw a comparative statement in the news- 
papers; I think I have it here; I do not know whether it covers that point. It 
states that the Central Gold Reserve at the end of April 1924 was $65,600,000. 
A year ago it was $9,000,000 less. 
Q. Now, Mr. Ross, the duties of the Bankers' Association are stated in 
the Act of Incorporation with such provisions as we find in the Bank Act?--A. 
Q. And in no other place?--A. In no other place. 
Q. Have you any control over the banks in any way, shape or form?--A. 
The circulation is the only-- 
Q. That is the only control?---A. That is the only control, yes. 
Q. Does the Bankers' Association exercise any control other than that--- 
for instance, with regard to the rate of interest?--A. You mean the rate charged 
to borrowers? 
Q. No, the rate allowed to depositors? A. It has been the practice from 
before my time--I have no knowledge of how it originated--to allow 3 per cent 
on deposits. 
Q. The Home Bank allowed more, did it not? A. I don't know, I am 
Q. Did it at the outset -- 
The ACTING CHAIRMAN: IS that by agreement between the parties? 
The WITNESS: I may say that is not universal either. There is one bank 
at least that allows more. 
By Mr. Shaw: 
Q. Which one is that? A. The Weyburn Security Bank. There is no 
compulsion about it. Any bank may allow what it likes, and the Weyburn 
Security Bank exercises that privilege and allows 4 per cent. 
[Mr. Hary T. Ross.] 

14-15 GEORGE V, A. 1924 
Q. Beyond the returns they made to you? That is the impression you gave 
me a few minutes ago from your answer? A. I have had a good deal" of rela- 
tionship with the banks more or less during the last 18 years. I do not say 
it in disparagement of Mr. Hughes, but perhaps I have had larger opportunities 
of knowing what the conditions are. 
Q. You have? A. Probably so. 
By Mr. Hughes: 
Q. Primarily the depositors of the Home Bank did not lose because the 
Home Bank had the privilege of issuing notes against its capital?--A. The 
Home Bank, of course, got consideration for all the notes it issued, and the 
depositors got the benefit of that. 
Q. Was the privilege of issuing notes the primary cause, or any cause--I 
think I can go that far--of the failure of the Home Bank?--A. I don't think 
so. I think that is a correct statement. 
Q. And if the inspection of banks is sufficient to keep the banks of Canada 
solvent the depositors will not lose and cannot lose because of the privilege of 
note-issuing?--A. I think, with those premises, your conclusion is correct. 
Mr. HuI-IES: I think there was some confusion in the minds of the Com- 
mittee that the note issue itself--- 
The WITNESS: Was the prinmry cause of the failure? 
Mr. HU6HES: 1NO, was a weakness in the bank system of Canada. 
The WITNESS: I do not think he privilege o.f note-issuing affects the 
solvency or insolvency of the bank. 
By Mr. Euler: 
Q. I think it is clearly established that it is possible for a bank to issue 
notes against capital which is really non-existent?--A. That is evident, yes. 
Q. Now, in your opinion, will the proposal of the amendments as made 
by the Minister of Finance prevent the continuance of the practice which I 
have described?--A. I would think that the proposal of the Minister of Finance 
will go a long way oward preventing a recurrence of what has happened in the 
case of the Home Bank. 
Q. Have you any suggestion to make that would be an improvemen 
upon the proposal made by the Minister of Finance?--A. I have not. 
By Mr. HeaIy: 
Q. I understand, Mr. Ross, that your conclusion was that the issuance 
of notes by the Home Bank did not increase the loss of the depositors? A. 
Did not increase the loss of the depositors? My reasons for that enswer, 
Mr. Healy was-- 
By the Acting Chairman: 
Q. Was that your answer--first of all?--A. Yes. 
By Mr. Iealy: 
Q. I think I understand your reason---A. I would like to couple with that 
my reason for that statement, namely, that the Home Bank got consideration 
for every note it issued, and therefore, the depositors were, to that extent 
Q. Would get consideration? A. Yes. 
Q. I want some light on that.--A. I will illustrate that. When a man 
borrowed from he Home Bank and gave his note, he got, we will say, $100 
of Home Bank notes. Then the Home Bank had that man's note for $100 
and that was security for the depositors to that extent. 
[Mr. II_ry T. Ross.] 

Q. As regards the figures,: You use them simply a,s tentative figures?- 
A. That is all. 
Q. Nothing more and nothing less? You do not for a moment commit 
yourself to say that $2,000,000 of note circulation was improperly put into 
existence ?--A. :No. 
Q. You simply use that figure in comparison as to how the capital of the 
bank was impaired?---A. Quite so. 
Q. And your meaning is that there was a certain circulation put into 
exis'tence to the ex4ent that the capital of the bank was impaired?---A. Yes. 
Q. And the $2,000,000 was simply a figure for the sake of argument?- 
A. And the consideration the bank got for the $2,000,000 was among the assets 
of the bank. 
Q. Now, let us assume that the $2,000,000 was issued as it was issued, and 
$2,000,000 of the bank's circulation was then acquired by the bank and put into 
circulation with the public?--A. Yes. 
Q. The bank in putting that circulation into existence must have put it 
out for a certain purpose?--A. A certain consideration. 
Q. In other words, for every single dollar of that circulation something 
ws acquired on behalf of the bank?---A. Yes. 
Q. An asset was acquired for the bank?--A. Correct. 
Q. Therefore, if a certain point, all these assets were good--all those 
assets had been good--they would have offset that circulation?---A. They would. 
Q. And there would have been no possible loss to the depositors at all?-- 
A. No po,ssible loss at all. 
Q. Now, in the course of this examination-- 
Mr. KELLNER: I am rising to a point of order. I submit this is out of 
order. We have witnesses here whom we are supposed to question for informa- 
tion. Members of the Committee come here and take exception to some 
answers that are given, and then try to disprove the point by asking questions 
of the witness. That is carrying on an argument between members through the 
Mr. MARLER: There is no point of order there. However, I am willing to 
accept the ruling of the Chairman. 
The Acw CHAIRMAN: I think there is a tendency on the part of these 
questioners to endcavour to prove their particular--I will not sav foibles--but 
particular points of view out of the mouths of the witnesses. Mr..Iarler has not 
transgressed any further than some of the others, so I cannot rule him out of 
order. I would suggest, however, that we endeavour to get the view points of the 
witnesses rather than to confirm our own. 
Mr. ]._RLER: What Mr. Healv was attempting to do was to tie Mr. Ro- 
down to a certain amount. That evidence is on record, and I think is not correct. 
The WwESS: I have already made the point -ith Mr. Healy that for 
every dollar of circulation that the Home Bank handed out, and which is now a 
charge against he assets of the bank, the Home Bank received consideration. 
By Mr. Mrler: 
Q. That is what I wanted to make clear to the Committee, that for every 
dollar's worth of notes put into circulation by the Hvme Bank, there was a sub- 
stantial asset acquired?--A. Yes. 
Q. I want to make this point clear, and I would ask you to give your ansver 
"Yes" or "No," if you can answer as briefly as that; it is not a question of circu- 
lation at all which led to the failure of the Home Bank?--A. It was not. 
Q. Your answer is "No?"--A. Yes. 
[Mr. Hm'y T. Ross.] 

14-15 GEORGE V, A. 1924 
The AcTNa CHAIRMAN: My ruling on the question would be this: The 
witness has been asked whether they are represented by counsel, and he tells us 
that they have four counsel representing them. The witness is asked- 
Mr. :[RVINE: What is their specific duty? 
The ACTING-CHtIRMtN: What is their specific duty? He declines to 
answer, and I think we might leave it at that. If those gentlemen are here for 
a purpose which their employer declines to explain, I do not think we need press 
that any further. 
By Mr. Irvine: 
Q. Just one more question. You stated a few moments ago that the pro- 
posals made by the Minister of Finance would go a long way to safeguard 
depositors in the future. Does that mean that it does not go quite all the way? 
--A. We have heard testimony before this Committee to the effect that no 
system of inspection will absolutely prevent bank failures and possible loss 
to depositors. That is my reason for making a qualified statement. 
Q. lYould you care to say in what way, in your opinion, it will safeguard 
depositors to any extent?--A. I think I can be quite frank about that. If an 
officer with the proper qualifications undertake this duty I cannot conceive of a 
bank getting into the hopeless condition into which the Home Bank got. There 
is power in the Minister's proposals that as soon as this officer is satisfied that 
an institution is insolvent, he shall make a report to the Minister, and the 
Minister is given the power to have a curator put in charge and its further 
operations terminated. 
By Mr. Cvvte: 
Q. I have just one question. I want to refer to a question asked by Mr. 
Irvine regarding the counsel employed by the Bankers' Association. I would 
like to ask the witness whether there are any counsel here representing the 
people or the depositors of the banks in Canada?---A. I think so; I think there 
are a large number of gentlemen who are looking after the interests of the 
Q. A second question. Do you think, Mr. Ross, they are as well paid? 
Hon. MEMBERS: 0h! oh. 
Witness retired. 
The Committee adjourned. 

WHURSDAY, June 12, 1924. 
The Select Standing Committee on Banking and Commerce met at 10 o'clock 
a.m., Mr. McMaster presiding. 
G. D. F]LVSON recalled. 
WZTSS: Mr. Chairman, when I was here before I was asked to get some 
information regarding the loss of deposits through he failure of banks over the 
last 20 years. The question, I think, was asked by Mr. Healy. I have obtained 
through the Department of Finance a memorandum showing the losses to 
depositors through the failure of banks during the last 20 years, and I may just 
read it. 
[Mr. Henry T. los.] 

Nine banks have suspended in the last 20 years. The Bank of Yarmouth 
(1905) ; The Ontario Bank (1906} ; The Sovereign Bank of Canada (1908) ; and 
the Banque de St. Hyacinthe (1908, voluntarily) and the St. Stephens Bank 
Mr. MoRN: And the Bank de St. Jean. 
WITESS: I am coming to that. These five banks paid one hundred cents 
on the dollar. In the case of ,the other four banks, losses have arisen as 
Banque de St. Jean {1908)- 
Paid 30.2 per cent to unsecured creditors leaving a 
deficit of ............................ $200,461 
Farmers' Bank (1910)- 
Liquidation incomplete. :No payment has been made to 
depositors and very little resources for such purpose. 
Deposits amounted to .................. $1,134,036 
Bank of Vancouver (1914)- 
Liquidation incomplete. Liquidator estimates there will 
be payment about 6 cents on the dollar to ordinary 
depositors. Excluding Provincial Government de- 
posit of $102,834 (preferred claim), and taking 
public deposits as a total loss the amount is .... $246,755 
By Mr. McQuarrie: 
Q. Is that the total amount of dividend, six per cent?---A. It is estimated 
that there may be a further dividend, the only dividend. 
The AcTI CH.mMA: The first and final. 
Home Bank of Canada (1923)- 
Excluding Dominion and Provincial Government 
deposits, and on the basis of a payment to 
ordinary depositors of 35 per cent, the loss would 
be ............................ $9,769,940 
By Mr. W. F. Maclean: 
Q. About these preferred federal and provincial depositors, are they 
secured? A. They are preferred. 
Q. Against the ordinary depositor?---A. So I understand, sir. I was also 
asked to get the average of the total deposits for the last 20 years. These 
figures could be mos conveniently obtained, I think, from the Canada Year 
Book, page 818, 1922-23. Taking these figures a ready calculation nay be 
made of the average of the total on deposit in Canadian chartered 6anks from 
the years 1903 to 1922 inclusive, which amounted to $1,228,880,418. 
By the Acting Chairman: 
Q. That is the average of deposits for any one year?---A. The average 
deposits for any one year. I think the object of this question was to find out 
what assessment would have to be made on the total annual deposits to provide 
for the losses that may be incurred. 
Q. On an actuarial basis?--A. It is not really an acturial problem; it is 
really an arithmetical problem because there is no law that we can go on. This 
is the way it was worked out. The total loss to depositors through failure 
of chartered banks in Canada during the last twenty years has been $11,351,192, 
and you get the average loss per year by simply dividing that amount by 20, 
which would give you $567,560. The average total deposits over the last twenty 
[Mr. O. D. Finlayson.] 

14--15 GEORGE V, A. 1924 
"1. In the United States the guaranteeing of private depositors 
accounts is practically unknown. 
"2. The only accounts which are guaranted are those of public 
bodies which are required by law or by-laws of the bodies themselves 
to have such deposits insured. These deposits are funds of the State 
Governments, Municipalities, School Boards, some Fraternal Orders and 
other similar bodies. 
"The first enquiry made by a guarantee company asked to guar- 
antee a certain account is whether the law requires the account to be 
guaranteed. If it does, the proposition is considered, if not, it is rejected. 
"The rate of premium is one-half of one per cent of the average 
balance or $5 per $1,000 and is uniform for all banks, clients and dis- 
"The application for the bond is always made by the bank. 
"The volume of this business in the United States is quite large 
and has for a period of years been fairly profitable. In recent years, 
however, the experience has been unfavourable, particularly in the 
agricultural districts. The business is carried mainly by the ordinary 
guarantee insurance companies. 
"Lloyds has little if any of this business in the United States. The 
guaranteeing of bank deposits in Great Britain is practically unknown." 
That seems to represent the experience of the insurance companies guar- 
anteeing deposits in t.he United States. 
The ACTING CttAIRMAI: :Now, gentlemen, shall we proceed to the examin- 
ation of witnesses? Are there any further questions to be asked of Mr. Finlayson 
before we proceed with other witnesses? 
By Mr. Ward: 
Q. I think you said, Mr. Finlayson ,that some nine banks have failed in 
the last 20 years, or thereabouts?---A. 13; about nine have paid in full, and four 
have incurred losses. 
Q. Of the four whose depositors were not reimbursed in full, I think you 
said that the loss had been somewhere in the neighbourhood of $11,000,0007 
--A. $11,000,000, yes. 
Q. Is it fair for us to assume, then, that these other banks that were 
absorbed by stronger banks, that the losses would compare favourably with the 
losses of the banks that were not taken over? Have I made that clear? 
The ACTING CHAIRMAN: :Not to me. 
The WITNESS: I do not quite get the point. 
By Mr. Ward: 
Q. What I wish to ask is this, that if the four banks which went into 
liquidation had a loss, the depositors sustained a loss of $11,000,000, is it fair for 
us to assume that that would be a fair comparison of loss of the other banks, 
though they were absorbed by stronger banks had they been allowed to fail? 
I think this is a very important question, and one that seems to have somewhat 
slipped the attention of the examination before this committee. If these 
other nine banks had losses similar to the four which went into liquidation, I 
should say it is a serious matter. 
The ACTING CHAIRMAN: Mr. Ward, I am just going to rule at the beginning 
that we are not going to have any questions which are really arguments; 
we will just ask the witness questions and get his ideas. 
[Mr. G. D. Finlayson.] 



The WITNESS: I would not be able to answer the question; I have no 
means of knowing what the loss would have been. 
The ACTING CHAIRMAN: Any further questions of Mr. Finlayson, gentle- 
men? If not, we thank you very much, sr. :Now, the next witness is Mr. 

J. C. SAIJNDERS, Deputy Minister of Finance called and examined. 
The ACTING CHAIRMAN: IS it the desire of the committee to examine Mr. 
Saunders about the Finance Act? If so, Mr. Saunders tells me he has prepared 
a comprehensive memorandum with which he would like to introduce his 
evidence before the committee. If it is the desire of the committee I shall ask 
Mr. Saunders to read this memorandum to us. Viva voice exanination is a 
great deal nmre interesting, but I think perhaps if the nemorandum is not too 
long, we might start with it. 
The WITNESS: (Reads) 
Advances to Banks Under Finance Act 1923 
Under authority of section 2 of the 1923 supplement to the Finance 
Act of 1914, the Minister of Finance may make advances by the issue 
of Dominion notes upon the pledge of the folloing securities--(repay- 
mcnts under authority of section 7 to be made in Dominion notes to the 
Minister or to an Assistant Receiver General) : 
(a) treasury bills, bonds, debentures or stocks of the Dominion of 
Canada, United Kingdom, any province of Canada, and of any British 
(b) public securities of the Government of the United States; 
(c) Canadian municipal securities; 
(d) Promissory notes and bills of exchange secured by documentary 
title to wheat, oats, rye, barley, corn, buckwheat, flax or other commodity; 
(e) promissory notes and bills of exchange issued or drawn for agri- 
cultural, industrial, or commercial purposes and which have been used 
or are to be used for such purposes. 
Section 6 provides that advances shall be for a period not exceeding 
one year and interest thereon shall be payable at such rate as may from 
time to time be fixed by the Treasury Board. 
The rate of interest as at present fixed by the Treasury Board is five 
per cent per annum. 
Section 3 of the Act provides that such securities shall 'be deposited 
with the Minister or with an Assistant Receiver General, and, further, that 
the Minister may request the trustees of the Central Gold Reserves to 
make a valuation of and recommendation as to the amount which, in 
their iud.qnent, may properly be advanced on any securities submitted. 
Section 4 provides that the Minister may permit bills of lading or 
other documents of title, covering grain or other commodity while in transit 
to go forward under the control of the bank to the point at which delivery 
is made and payment therefor is received, the bank to be a trustee for 
the Minister, to the extent of the advances, of the proceeds received for 
such grain or commodity. 
Section 5 provides that all promissory notes or bills of exchange when 
pledges shall have a maturity exclusive of days of grace, not later than 
six months from the time at which they are pledged. 
Section 9 provides that these atvances shall be deemed to be an 
amount due by the bank to the Government and shall be a second charge 
upon the assets of the bank. 
[Mr. J. C. Saunders.] 

14-15 GEORGE V, A. 1924 
Section 10 provides that the bank shall satisfy the trustees of the 
Central Gold leserves before an advance is made that any promissory 
notes or bills of exchange issued for agricultural, industrial or commercial 
purposes, offered in pledge, have in fact been issued or drawn or the 
proceeds have been used or are to be used in the first instance, in pro- 
ducing, purchasing, carrying or marketing grain or goods, wares and 
merchandise within the meaning of these words in the Bank Act. 
Section 11 provides that no advances shall be made against the pledge 
of promissory notes or bills of exchange issued for the purpose of carrying 
or trading in stocks, bonds, or other securities, or to be employed on 
capital expenditures of any kind, and the Minister may direct the trustees 
to make inquiry and report, as to whether any notes or bills offered in 
pledge fall within the prohibition of this section. 
Advances under the Finance Act are authorized by the Treasury 
Board on the formal application of the bank, enumerating the securities to 
be tendered as collateral, such application being in the form prescribed by 
the Treasury Board. (See EXHIBIT No. 19 at page cxxxii.} 
The Acc-G CIKml.N: Who are the members of the Treasu Board? 
The 'TNESS: The Minister of Finance is the Chairman; the Minister of 
lailways and Canals, the Minister of Cuoms, the Minister of the Interior, 
and the Postmaster General. 

By Mr. Shaw: 
Q. The Act provides that it shall be the Minister of Finance and five mem- 
bers of His Maiesty's Prixy Council, with the Deputy Minister of Finance 
as the Secretary, ex officio?--A. Yes. 
As all advances under the Finance Act become due on May 1st of 
each year, it has grown to be the practice for the banks to submit to 
the Treasury Board, just prior to that date, their applications for the 
authorization of advances to cover anticipated or possible requirements 
during the whole of the ensuing year, including the renewal of outstand- 
ing amounts. This practice, of course, does not in any way preclude the 
bank from making other applications in the course of the year which 
changing conditions may require. 
Within the scope of the approval or authorization given by the 
Treasury Board, and upon deposit and pledge of the approved securi- 
ties, the Department makes loans from time to time upon the written 
or teleaphic request of the bank. Advances may be made at Ottawa, 
or at the office of any Assistant leceiver General, at the bank's option, 
and repayments are due at the offices at which the advances were made. 
In practice, most of the advances are made either at Montreal, Toronto 
or 'innipeg. Where securities are kept on deposit with the Depart- 
ment (as many banks do. whether there are outstanding advances or 
not), advances are obtainable upon notice of an hour or two, although, if 
possible, the banks are asked to give twelve hours' notice of their 
The form of pledge agreement to be deposited with the collateral 
is prescribed by the Treasury Board (see Exhibit 20.printed at end of 
this evidence). On the form are printed regulations, terms and condi- 
tions applicable to all advances under the Finance Act. covering such 
matters as rate and payment of interest, repayments, release of securi- 
ties and procedure on default. 
Under the provisions of section 12 of the Act a Treasury Board 
Minute of May 30th, 1923. authorized the margins by which the different 
IMr. ;I. C. Saunders.] 

14-15 GEORGE V, A. 1924 
Q. How many constitutes a quorum?---A. Three. 
Q. So you ordinarily have a meeting once a week, with at least three 
present?--A. That is what we try to do. There is no special time set. 
Q. Do these gentlemen on the Treasury Board change from time to time? 
For instance, would it be impossible for hir. Motherwell, for example, to take 
the place of Mr. Stewart, or one of the other members, or are there frequent 
changes?--A. :No, there are not frequent changes, except supposing a Minister 
goes out who happens to be a member of the Board, and he has to be replaced. 
Q. For example, Mr. Robb went off to Australia. I suppose during his 
absence somebody else would be appointed.--A. No, we would have our quorum 
of three. 
Q. Do I understand correctly that only the banks can take advantage of 
this Finance Act?--A. 0nly the banks. 
Q. Suppose, for example, that a province came here with gilt-edged bonds 
--and lots of provinces have them-- 
The CHAmMAN: Quebec, for instance. 
By Mr. Shaw: 
Q. The province of Quebec, for example, and they came to you as secretary 
of the Board and said, "Here is $1,000,000 worth of bonds; we want $10,000 
in notes." What would you do?---A. I would tell them they must get the Finance 
Act amended. 
Q. Or shift them off to the banks?--A. Yes, they could do it through a 
Q. So the fact is that this Finance Act is something which operates only 
at the instance of the banks?--A. Yes, at the present time. 
Q. Nobody else in Canada, no matter what their security, has any right to 
go directly to that Board and ask for accomodation?--A. :No. 
The CHAIRhAN: That is getting near the line of argument. 
:Mr. SHAW: No, it is a fact. I refuse to even enter the realm of argument 
in the matter. 
Mr. M.RLER: I wonder if it is possible to ask the gentleman what ad- 
vantage it is for anybody else coming under the Finance Act? 
Mr. SHAW: That would be a matter of argument. 
The CHAIRMAN: You might ask the witness' opinion on that; I do not think 
that would be argument. 
Mr. SHAW: That might be a matter of argument, and I will not touch it. 
Q. :Now, Mr. Saunders, you have stated that the interest rate is five per 
cent. Has it ever varied, to your knowledge?---A. In the early part of the war, 
the then Minister of Finance, in arranging for the banks to make a large loan 
to the Imperial Treasury for war purposes here in Canada, that is for supplies 
in Canada, allowed the banks the privilege of rediscounting, you might say, 
with the promise that they could have it for three and a half per cent,.but 
that was iust a temporary thing, because the banks were rather afraid of it. 
Q. That was just one special instance? ,k. Yes. 
Q. So it would be correct to say that during the operation of this Act, with 
the single exception you have mentioned, the interest rate has been fixed at five 
per cent?--A. Five per cent. 
Q. There has been no variation?--A. :No variation. 
Q. Might I ask you this? Is there any expert or advisor to the Treasury 
Board, outside of yourself, at these meetings?--A. I hope not. I am supposed 
to be the advisor. 
[Mr. J. (. Saunders.] 

Q. Do you have a special knowledge of the problems, for example, of 
inflatation and dcflation?--A. I do not consider myself an expert, but I naturally 
have a little experience and knowledge of it. 
Q. Can you tell me whether or not the interest rate might be used as a 
means of assisting in the process of deflation, or as a weapon which might be 
used against inflation?--A. I do not quite get that. 
Q. Do you recognize the interest rate, that is the raising and the lowering 
of the interest rate, as an effective instrument not perhaps thorough, but an 
effective instrument to cause deflation or to assist inflation?--A. I do not think 
Q. You think the interest rate would have no relation to that matter at all? 
---A. I do not think so. 
Q. And consequently it would be wholly unnecessary to have either an 
increase or decrease in the interest rate for that purpose under the provisions 
of the War Finance Act?---A. We have never looked at it in that way, nor 
considered it in that way. 
Q. Then it would be fair to say that as an instrument for the purpose I 
have mentioned, the Treasury Board does not consider it, and has never con- 
sidered it?---A. Not in that light, no. It has always been considered as neeting 
the needs of the banks in their commercial business, and work outside in the 
business world. 
Q. Is it profitable, Mr. Saunders, for the banks to take advantage of the 
provisions of the Finance Act?--A. It must be, or they would not work it. 
Q. And do you know the ordinary procedure of the banks in connection with 
the operation of the Act? Probably I had better put that this way. Is this 
what ordinarily happens, that the banks come to you with their securities, 
take advantage of the provisions of this Act, get the Dominion notes at five 
per cent, and then take these Dominion notes to the Central Gold Reserves and 
thereby get the right to increase their own circulation?--A. Yes, they can, 
but as I see it that is not the usual reason for getting it. It would not pay 
them; the banks are so anxious to have these repayments made and escape the 
five per cent interest that I do not think they would pay five per cent just for 
the sake of getting further circulation, unless they could make that work in 
Q. Do they not make that work in business?--A. I should think they do. 
Q. And they would have little difficulty in getting their circulation out at 
a rate exceeding five per cent, would they not?--A. Well, of course we do not 
follow the money out, to see what rate of interest they get. 
Q. I was wondering if you knew what it seems to me must be a perfectly 
clear practice, for them to go with the Dominion notes secured under the War 
Finance Act, and take them right over to the Central Gold Reserves and get 
the right to increase their circulation by depositing them there.--A. As a 
matter of fact the banks use these notes mostly to meet clearings. The 
circulation is an intricate business for the banks to keep track of, they have 
so many branches flung all over the country, and they have several expert 
men watching the circulation. When they think they will be met by demands 
at the Clearing House beyond their resources to pay in Dominion notes, they ask 
for these advances, they may put them in and when they are not needed they 
will take them out again, because they do not want to pay the interest. Or they 
may leave it in. 
Q. Would you suggest that the main purpose that the banks have in mind 
in applying under this Finance Act is for the purpose of getting large legals 
in order that they may meet their Clearing House returns?--A. That is my 
[Mr. J. {. 8,unders.] 

Q. Tell me whether it is not a fact that some years ago an arrangement 
was made with the banks by which they collected this American coinage and 
we paid a commission; the American coinage was shipped across the boundary, 
where it belonged, and it was replaced by Canadian coinage minted at this 
Royal Mint?--A. That was so, but it was not necessarily replaced by the hlint. 
The banks shipping, if they depleted their silver holdings, they would have to 
get Canadian silver in the usual way. 
Q. And they would not have to pay for it?A. Ceainly they would 
have to pay for it. 
Q. In purchasin it the Mint was enabled to make quite a bit of money? 
A. In purchasing what? 
Q. In purchasing the necessary silver coinage to replace?A. I see your 
point. We make a ceain amount on our silver coins 
Q. I understand about 100 per ccnt?A. Not now, about 50 per cent. 
Q. That is quite  lot?A. Silver was up, you know; it depends on the 
price of silver. 
Q. There is a big profit to be made in that exchange of Canadian coinage 
for the American coinage, is there not? Or have you investigated the matter 
particularly?A. I do not see where the American coinage comes in at all. Our 
silver circulation goes out as the banks require it for commercial purposes. 
When they get American shyer in and ship it out, that is their business. I 
may say that the banks are filled up with silver now and have more than they 
really require. 
Q. Has this arrangement with the banks for the deportation of American 
coinage been eliminated?A. Yes. 
Q. So that the banks have no interest now, from a commercial point of view, 
in deporting the American coinage?-A. When the exchange is against us, it 
helps them a bit if there is enough difference to pay for the shipping. 
Q. But it has to be against us ve strongly before they would be interested 
in shipping out American coinage?A. I do not suppose it would cost more 
than, say, one-quarter of one per cent anyway to send silver across the border. 
Q. What I vant to draw to your attention is that in past years there has 
been a tremendous profit nmdc by this which accrued to the Canadian Govern- 
meat. Now. there is not any. What I want. to suggest to you is that it is be- 
cause this arrangement with the banks has been eliminated and there is a lot 
of American coinage in the country which should be depoedA. No, pardon 
me, that is not the reason. The reason is that durin the war we had to get 
a sueien, circulation so that the country would have it for its present needs. 
It is not the case that American money is here displacing Canadian money. 
During the war period, the hlint worked night and day sometimes turning out 
silver or war financial purposes and we were flooded with Canadian coinage. 
Q. Do you think that there is no American coinage in circulation?. 
There is, but nothing to 
By the Acting Chairman: 
Q. Nothing to write home aboutA. Nothing to write home about. 
Mr. SH.w: I know there is a lot in Ottawa. 
The Acw-a Caa.: Under the Gresham .law all the poorer money 
driven out by the better American dollar bills and American silver will dis- 
hlr. SHaxV: I think you will find that the Gresham law will have to be 
jacked up a bit. before it affects American coinage. 

By Mr. W. F. Maelean: 
Q. I asked the witness if this Central Gold Reserve was an adviser of the 
Government in rediscounting?---A. They may be. 
Q. They are asked to report on certain securities?--A. Yes, if they are 
Q. And they themselves present these securities?---A. No. 
Q. Nobody else can present a proposition for a loan but a bank?--A. There 
are fourteen banks, and they do not represent the whole fourteen. 
Q. They pass upon loans that are passed on by the banks themselves?-- 
A. We have been perfectly capable of passing on our own loans, and we have 
not asked them to do it. But if we get any obligations involving paper that 
we have no means of valuing, then we will ask those financial men their opinion. 
Q. Well, the Central Gold Reserve is largely a treasury for securities? A. 
The Central Gold Reserve has nothing to do with securities. Theirs consist of 
gold or Dominion legals. 
Q. In all cases, Dominion notes, as a matter of fact?--A. No, not at all. 
Q. In what proportion roughly? 
Bg Mr. Coote: 
Q. Is it not about 25 per cent of gold?---A. Something like that. Yes, in the 
Central Gold Reserve $9,502,533, is held in gold coins and the balance is in 
Dominion notes. 
By Mr. Spencer: 
Q. What is the balance?---A. The total deposits are $65,602,000. 
Bg Mr. Benoit: 
Q. Where is it located? A. In the Royal Trust Company, Montreal, in 
their vaults. 
By Mr. IV. F. zIacIean: 
Q. In the United States the Government itself has control of reserve funds 
of this kind, and also the Comptroller of the Treasury. They act for the 
State and the banks have to do business with them. What we are trying to get 
at here is something like the American system. In the United States, instead 
of a central gold reserve controlled bv the banks, there is a National Reserve 
System?--A. You mean the Federal leserve Banks? 
Q. And it is connected with the Comptroller of Currency?---A. You are 
referring now to the Federal Reserve Bank System of the United States? 
Q. In the United States a Federal officer performs the duty that is apparently 
done here by a Trust Company, in connection with the Central Gold Reserve 
which is controlled by the banks largely. 
The ACTING CI-IAIRlXIAN: What is the question you are asking the witness? 
Mr. W. F. h][ACLEAN: As to the American system of Finance-- 
WITNESS: I do not know that I have looked it into it very closely. I do 
not see anything the matter with our system. 
Mr. W. F. h{ACLEAN: I am satisfied with that, if he says he does not know 
a better system. 
By Mr. W. F. Maclean: 
Q. In England, who does this work?--A. I do not know. 
By Mr. Coote: 
Q. I would like to ask if there is any limit to the amount of Dominion 
notes which his department may issue under the Finance Act?--A. No limit at 
all so long as the securities are there. 
[Mr. J. C. Sunders.] 

Q. I am asking you whether you can give me some reason as to why this 
dty should not be carried on 'by your department, instead of the Canadian 
Bankers' Association, the supervising of the printing and issuing of notes which 
go from hand to hand in 'Canada, among the publie?--A. I do no think it is 
necessary. That is my opinion, and I understand that you are only ask;_ng 
me my opinion. I think it is unnecessary. 
Q. You think it would not be any better if it were under your own depart- 
ment?--A. I do not think so. 
Q. Do you think tha,t the returns which the 'banks publish monthly should 
be sent to the Bankers' Association or to you?--A. I think they should be sent 
to us, as they are. 
Q. Would it not be ,ust a.s logical to have these return.--A. You mean the 
returns under the Bank Act. that are now sent to us? Should they go to the 
Bankers' Association? Do you mean that? 
Q. I mean the monthly returns required under the Bank Act.--A. They 
should go to us, most certainly. 
Q. If these returns should come to you, why should not the circulation 
returns come to you as well?--A. We do get he circulation returns. The 
circulation returns of the bank, and their reserve notes are two different things. 
Q. Why should not the returns of the printing of the bank notes come 
to you?--A. Because there is no business in that; they are not worth, in my 
opinion, the paper they are written on. Until they get into circulation they 
do not go into the business of the country. 
Q. When these notes are once printed, is there not a grea,t possibility of 
them getting into circulation?--A. Not improperly, I do not think there is 
any possibility at all. 
Q. You think there is no possibility?--A. :No, I do not think you can 
find any case where they have. I have no knowledge of it. 
Q. Have you known of any cases where a bank has exceeded its powers 
of note issue?--A. Inadvertently, sometimes, and we have checked them up 
and called their attention to the penalty involved. 
Q. Could you tell the committee how you can ascertain whether it is done 
inadvertently or whether it is done intentionally?--A. The amount, is so 
small. I recognize that the banks have great difficulty in controlling their 
circulation so they will not violate the Bank Ac,. They have to make their 
forecasts, take all their branches into consideration. If a man makes a little 
slip and does not estimate enough, he may go a few thousand dollars over 
his circulation, but if it were done designedly, if a bank should start in to 
do that designedly, they would deal in bigger figures than that, and the 
over-circulation does not amount to very much. It is all due to errors. 
Q. Is it not a fact, Mr. Saunders, that in adding up the circulation 
returns from several hundred branches, it is just as easy to make a slip in the 
million dollar column as it is in the one dollar column?--A. If i, is they have 
not done it. 
Q. Do you think we should wait until they do it before we take some 
measure to see that this printing and circulation is in the hands of our own 
officers?--A. Do I think we should wait till they do it? I do not expect they 
will do it. 
Q. We did not expect last year that the Home Bank would fail.--A. 
The Home Bank was in a category by itself. Because there was wrong-doing 
in one bank, you mush not be suspicious of the whole fabric. 
Q. It was in a different class from the Banque Nationale?A. Yes, 
there was nothing to be compared in the Banque Iqationale, with the Home 
[Mr. J. C. Saunders.] 

14-15 GEORGE V, A, 1924 
couver and ultimately getting into Germany's hands. So we put an export 
prohibition on gold, and bhat automatically took us off the gold basis. 
Q. A gold basis can only be maintained, then, when we are at peace?--A. 
A gold basis can be maintained at any time if we do not prohibit the export. 
As soon as you prohibit the moving of gold, you are off the gold basis. 
Q. Do you thing we did the right thing to go off that basis?--A. Surely. 
Q. Then on what ground can you want to go back on it now?--A. Because 
there is no necessity. Germany can have all she likes of it, if she will pay 
for it. 
Q. When you run out of gold, how do you keep your exchange up?---A. I 
do not think we can run out of gold, but that is the danger. This is my per- 
sonal opinion. There are financiers who agree with me, and there are others 
who do not disagree so much but they are a little timid just for that reason 
that it might cause a run on the gold resources of the banks, and deplete the 
gold resources too much. That is the reason I am a little timid of being forcible 
in my opinion that we should go on a gold basis. 
Q. I would like to pursue this subject further, but I think it is taking up 
the time of the committee unnecessarily, so I think we will leave the question 
of the gold basis. To come back to the operation of the Finance Act, you are 
really conducting a sort of bankers' bank? You refuse to advance notes to 
any other conccrn than a bank?--A. The Act does not permit us to. 
Q. Therefore you are really acting as a sort of bankers' bank? A. Yes. 
:No, not as a bankers' bank, we are acting as a means of relieving business 
throughout the Dominion. I would not say we were acting as a bankers' 
By the Acting Chairman: 
Q. Your organization is a place where bankers may obtain credit, but 
nobody else can?-A. Yes. 
By Mr. Coote: 
Q. Then, when the banks come to you for an advance, do you take into 
consideration the position of that bank, as to its standing, outside of the value 
which you place on the securities which it offers to you? A. We take into 
consideration the position of the bank in another way, in their monthly return. 
When we get the securities, if they are good we do not have to say to the bank, 
"Are you good?" If they give us the securities it protects any advance we make 
under the Act. We are only dealing then with one class of business. 
Q. Can you tell, Mr. Saunders, from the reading of these monthly returns 
which they furnish to you, whether the bank is really in a good or poor position? 
-A. Certainly, I think we can; if their statement to us is correct, we can tell. 
Q. Can you tell whether the statement is correct or not?-A. We have to 
take them as correct until we know otherwise. 
Q. You do take them as correct? A. Certainly. Under the Bank Act we 
have to take them. That is all Parliament gives us to do, get the statements and 
declarations of the banks' officials as to certain headings or certain classes of 
business which they do, and upon which they make a return to the Finance 
Q. Do you not think you should really know more about the condition of 
the banks before you advance them money under the :Finance Act?--A. To, 
I do not see any connection between their position and us. If a person came to 
you and gave you good security, you would not care if he was the most insol- 
vent man in the country. 
Q. If you go to the bank and want a loan, no matter what the security 
is, they want a statement from you.--A. That is a matter of credit. 
[Mr. J. C. Ssunders.] 

Q. Did the Banque :Nationale have money advanced under the Finance 
Act ?--A. Yes. 
Q. At the time it was taken over by the Bank of Hochelaga?--A. Yes. 
Q. And you did not know anything about the condition that the Banque 
:Nationale was in?---A. I knew they were having trouble. 
Q. Did you know how they got into trouble?--A. Yes, I had a good idea. 
Q. Was it through nmking certain large loans?--A. I understand so, what 
they call "frozen assets." 
Q. If we had a section in the Act which limited the amount of loans which 
any bank could make, to a percentage of its capital, would it not prevent a 
large number of these big frozen loans? Would it not safeguard the deposits? 
--A. The merits and demerits of that, I would not like to give my opinion on; 
I really would not know. I know that was proposed at the last Session, that 
the amount of a loan should be governed somewhat by the amount of the 
capital of the bank. I would have no remarks on that; I would not like to make 
any remarks one way or the other. 
Q. I should think you would be in a position to advise this committee. 
This measure was proposed last year, and I think it was turned down by the 
committee. Have you seen any reason in the last year to lead you to believe 
that this would be a wise provision to insert in the Act?--A. I would not like 
to say it would, because I know it is claimed that you would cut off a great 
deal of business now enjoyed by the banks with people who have large credits. 
They would have to divide it, go from one bank to another. They would prob- 
ably get it eventually, but they could not place it all with their own bank. As 
to t',_lc merits of that, I would not consider myself an expert. I am a national 
finance man, rather than a commercial finance man. If you want just my 
personal opinion, I do not think they should be interfered with at all. 
Q. Do you know whether some of the present banks have not too large an 
amount of their capital tied up in frozen loans?---A. :No. I may say that if you 
took the trouble to examine the annual returns of the various banks to their 
shareholders, you would find that the average liquidity of the banks is about 
50 per cent of their assets. 
Q. And if they had a lge amount of the other 50 per cent in frozen loans, 
that would not be a good position?---A. I would not say as to that. I would 
not say that that other 50 per cent is all frozen. 
Q. Would you consider that a loan to a company which is in liquidation is 
a frozen loan?---A. A loan by t.he bank? 
Q. To a company which is now in liquidation? Would that be considered 
a frozen ]oan--A. I do not see who would make it. 
hIr. SHAV: A loan alreay made. 
The WwESS: I am not accustomed to being a witness, and I am afraid 
of answering some questions without thoroughly understanding them, :o if I 
do not speak very clearly that is the reason. 
The A(wilO CHAIIMAN: Take your time, and be sure you thoroughly under- 
stand the question before you answer. 
By Mr. Cooke: 
Q. The question I want to put is this. In the case of a loan which has 
been made to a company by a bank, that company afterwards going into liquida- 
tion, with the loan still unpaid, they are owed by that company to the bank. 
Would .you consider that to be a frozen loan?---A. Mr. Coote, it would depend 
on how badly the company was involved. A company might go into liquida- 
tion and come out practically square, or nearly square, but if it were hope- 
lessly involved, of course it would be a frozen ,loan. 
[Mr. $. C. Saunders.] 

obliged to do some private negotiating to try and put that bank into a more 
liquid condition. If you appoint a Government inspector, the sane condition 
might exist. The only difference would be that it would be nore likely discovered 
and reported to you?--A. Surely. 
Q. Now, Mr. Saunders, what in your opinion would be the wiser course 
for this committee to recommend in order to prevent a bank making such large 
advances against non-liquid securities, so that this condition could not arise at 
all.7---A. I do not know just bow to answer that question, because I cannot 
understand a bank making a big advance on non-liquid security. 
Q. The fact exists that they do nmke that sort of advances.--A. Have they 
not been led into it step by step, and then by t-ing to save themselves they get 
involved, the way the Merchants Bank did? 
Q. The condition has existed.--A. Yes. 
Q. In other words, bank inspection will be a help, but it will not prevent 
that condition? A. :No. I may say that my opinion is that if some of the banks 
who got into unfortunate circumstances, as soon as things did go badly, had 
taken their losses, and stopped there, they would have been saved, but they 
tried to urse the thing along and got in deeper and deeper. 
Q. $ ou would not like to hazard an opinion as to what the comnittee should 
consider to avoid that condition being brought about in a bank? 
hit. GooD: The limitation of loans, you mean? 
By Mr. Malcolm : 
Q. The question of security as to liquid assets? A. hly opinion is that 
bankers are trained business men, and that it would not be advisable to 
interfere with their own business principles, and t,he running of their business 
too much, that we should not be a grandfather to them, because they do not 
need it. 
Q. But, Mr. Saunders, you realize the responsibility of the Government 
of Canada to depositors, when we have government control of banks, and if 
recommendations or regulations could be included in the Act which would 
eliminate the danger of a certain set of conditions being brought about, not by 
the good banker but by the speculative or gambling banker, it would be in 
the public interest to have these regulations introduced? A. My opinion is 
that you cannot control the bad nanager or the speculator in business by 
Q. Then _you think the only hope is to have inspection, so that it may be 
detected at as early a moment as possible?---A. I think perhaps that would be 
the better plan. 
Mr. IRVINE: Mr. Chairman, I would like to ask one or two questions. 
The Aca CHUmMed: I would be glad to have you do so, sir, but Mr. 
Coote asked me privately whether he could ask one or two more questions to 
Mr. COOTE: With Mr. Irvine's permission. 
Mr. IRVINE: By all means. 
By Mr. Coote: 
Q. I just wanted to ask Mr. Saunders a couple of questions regarding 
these monthly returns. Will you tell the committee, Mr. Saunders, what is 
meant b.v " bills payable " by the banks? A. That is bills they owe. 
Q. Could you explain to the committee how a bank, or what bills a bank 
would owe amounting to $7,000,0007 That is a little hard for some of the com- 
mittee to understand, why a bank would owe bills to extent.--A. The bank. 
[Mr. J. C. Saunders.] 

14-15 GEORGE V, A. 1924 
Q. I have, but I am not ansvering questions just now. I have studied it 
a little, but I want your opinion as to why you would not allow them to have 
full control over the banking situation? They are efficient., according to you, 
and they are very honest, so much so that you cannot even doubt them.--A. In 
England there is no such control over the banks. In the banking institutions 
in England they do not have any such control as we have here. 
Q. Then why not eliminate it. and go on the English basis?--A. I am not 
called upon to answer that. 
Q. You have no recommendation to make?---A. No, I would not express 
an opinion. 
By Mr. Spcak.m(: 
Q. There is one thing I would like to ask on the evidence already sub- 
mitted. I understand, Mr. Saunders, from your explanation of the Finance 
Act, that the (Jovernment may loan to the banks for the carrying on of their 
business money in Dominion notes to an amount limited by the demands of the 
banks and the security given?--A. Yes. 
Q. And tile most desirable collateral is Dominion obligations, Dominion 
bonds and Dominion guaranteed bonds?---A. Yes. 
Q. I also understand that the Government borrows from the banks certain 
monies for carrying on its business operations?---A. Yes. 
Q. I would like to ask you if you would hazard an opinion as to the pos- 
sibility of tile Government borrowing from itself on the strength of the same 
collateral which it now uses as a basis for loans to the banks, loaning the same 
money to itself under Dominion notes, which it now borrows from the banks 
in that roundabout way, and so eliminate the interest it is obliged to pay? A. 
The printed bills that we have now outstanding are not recent ones. They are 
war treasurv bills that amount to about $91,000,000. They are the residue of 
$143,000,00 which we borrowed from the banks in war time. There is no dis- 
position on the part of the Finance Department now to make any borrowings 
Irom the banks. We have reduced the amount from $143.000,000 to $91,000.000, 
and I would .like to get them further out of the way if we could. But there 
is not much prospect in the near future of making many further reductions. The 
Finance Department feels that it will not be necessary to go to the banks to 
borrow any monies at all. We have not been borrowing, from the banks for 
years. We are trying to reduce what was borrowed during the war time. These 
are war time left-overs, these treasury lills. 
Q. I understand then that the Government has ceased to borrow any 
monies from the banks, but at the time they did borrow, the security was the 
same security upon which the banks may now borrow money from the Govern- 
ment, that is, Dominion obligations?---A. At the time we did borrow during the 
war, yes. 
Q. You used Dominion obligations as securities in the form of treasury 
notes? A. Oh yes, we gave them treasury notes. 
Q. And at the present time, these Dominion obligations in another form, in 
bonds or guaranteed bonds, are being used by the banks as a basis for their 
borrowing?--A. Just a fraction. They are holding the treasury notes in their 
vaults as an investment. 
Q. You have not considered the possibility of utilizing these Dominion 
obligations as a means for self-advancement? A. Oh no, the Minister would 
put me out if I did that. I try. to do sound financing in the Finance Department; 
I would not consider that sound financing. 
Mr. SPE.A: I have been trying to follow your evidence logically and 
without any disposition towards wild finance, I hve been unable to see the 
[Mr..I. (3. Sunders.] 

difference between lending Dominion notes for Dominion obligations, and lending 
to the Dominion government under Dominion obligation. 
The witness retired. 
The Committee adjourned until 3.30 p.m. 


The Committee resumed at 3.30 p.m., the Chairman, Mr. Vien, presiding. 
The CHAIRMAN: Gentlemen, I understand that Mr. Saunders has solne 
further explanations to give to the Conmittee on a point that was raised this 
morning. I suppose the Committee will not have any objection to his taking 
the stand again. 

J. C. SAU:NDERS recalled. 
By the Chairman: 
Q. I understand, Mr. Saundcrs, that you would like to tell the Connittee 
something additional?---A. Just to amplify what was said here this morning in 
connection with the knowledge or control that some members expressed that the 
Finance Department should have over the delivery of notes that are printed for 
the banks. The Department under the law has to leave that to the Canadian 
Bankers' Association. What I did not say but might have said is that the 
Canadian Bankers' Association as a practice, monthly, send us a report of their 
findings. Of course, we are not responsible for it, but we have knowledge in 
that way of what is going on in connection with the delivery of notes to the 
banks by means of this monthly report which the Canadian Bankers' Association 
find to be the fact after inspecting the banks in that respect monthly. 
By Mr. IV. F. Maclean: 
Q. Is there a Government savings bank in connection with your Depart- 
ment?--A. Yes, very limited. 
Q. What is it called?--A. The Dominion Government Savings Bank. 
Q. Where does it operate to-day?--A. In Prince Edward Island, at Halifax, 
St. John and Victoria. 
Q. That is-in the Maritime Provinces and the Pacific Province?--A. Yes. 
Q. Is there a Deputy Receiver General's office in Toronto?--A. We call him 
Assistant Receiver-General. 
Q. That Department at one time did take private deposits?--A. Yes. 
Q. Will you tell us under what circumstances that very active Government 
savings bank ceased to operate in Toronto and when?--A. Mr. Maclean, the 
policy of the Department is--you see the Post Office Department has savings 
banks all over the country in small places, and it was a case of the Department 
of Finance maintaining a separate one, and our deposits frown the public kept 
growing less and less, and the management of it became pretty expensive and 
were transferred whenever we could transfer them to the Post Office and let 
the Post Office handle the whole thing. 
Q. And you will have the same thing in the Maritime Provinces?---A. Yes, 
as soon as we can. I have it in mind to do that. 
Q. They are still operating ,in the Maritime Provinces.?---A. Yes. 
Q. I want to know why such an excellent system of Government savings 
banks with amvle security is being discontinued, and why it is being discon- 
tinued in my own province, particularly in the city of Toronto. Why did it 
cease to function as a Government Savings Bank in Toronto?---A. The Assistant 
[Mr. J. C. Saunders.] 

Q. I will assume, for the sake of argument, that it was unimpaired until 
1916?--A. Its unimpaired capital then was $1,939,300, and it had a circulation 
out of $1,666,000, a couple of hundred thousand dollars less than they could 
have if they wished. That circulation has never been lessened. It was out 
legally, it was out against the bank's unimpaired paid-up capital. If the bank 
desired, or if they found their capital impaired at any time, what would be the 
result? They would have to call in a certain part of their note issue so that 
they would have a note issue equal to their unimpaired paid-up capital. Where 
would that get them to? It would not help the depositors any; they would have 
to sell or make use of one of their assets. They would have to lessen their assets 
to represent those notes out of circulation, and the depositor would be as he 
was. The depositor obtains no help, or liability, you might say, for the note 
issue of the bank. That does not work in any way to help or otherwise the 
depositor. That is the way I look at it. 
Q. That is your opinion?---A. That, is my opinion. 
Q. I am glad to have it.. Now I am going to see how the facts work out. 
It- lost its legal right to issue notes in 1916, cntirely?--A. Yes. 
Q. That is correct. Renember that is what Mr. Justice hIcKeown finds? 
-A. I have not studied the report. 
Q. He finds that the total paid-up capital had been lost in 1916? A. Well 
then, that is the fact. 
Q. For the sake of argument, we will say that the total capital out on that 
date was $2,000,000; it would not be quite out?--A. $1,805,000. 
Q. Was out on that date?-A. Yes. 
Q. Illegally?---A. I doubt after the bank closed its doors. 
Q. Whatever circulation was out on that date, was out illegally? Is that 
right?--A. Yes. 
Q. And it was out illegally from 1916 to 1923?--A. Yes. 
Q. Until the bank closed its doors. And it was under the jurisdiction of 
only two people, or two concerns, at that time--tlie bank itself and the Canadian 
Bankers' Association. The Government had no jurisdiction over it, is that 
right?--A. Yes. 
Q. Then we come to the date when the bank closed its doors. The amount 
of circula,tion out was represented in the total assets by some form of security? 
A. The amount in circulation out was repmsented-- 
Q. In the total assets, because it. had been put out on something?-A. The 
net circulation was a liability, and there were assets against it. 
Q. Had the paid up capital not been depleted, how nmch would the assets 
have been increased? A. You mean if it was-- 
Q. If the capital was still intact, unimpaired, how much would the total 
assets on the day the bank failed have been increased?--A. By the value of the 
$2,000,000 of its liability. That was in their assets somewhere. 
Q. Exactly, because the note issue was illegally out and the depositors 
finally lost the total amount of the issue out on the day the bank failed?--A. I 
do not hold that, and I will tell you vhy. If the note issue was, as you say, 
illegally out and if it had been taken up and not allowed to be illegally out, the 
assets of the bank would have to be depleted to bring its notes in. 
Q. Correct. If it had been taken up in 1916, the depositors would not have 
lost a cent. Mr. Justice McKeown so finds?--A. I hardly think that he would 
find it was the circulation. It was the assets. In 1916 that would have taken 
care of all that and all the depositors too, not the circulation. 
Q. That is the finding, and I think I will be able to refer you to that in his 
]udgment?--A. I ha'e not seen the report, but if it is as set out in the paper 
last night, the depositors would not have lost anything in 1916 but that was on 
[Mr. J. C. Satmders.] 

14-15 GEORGE V, A. 1924 
account of the bank being in such a position that the assets of the bank could 
have taken care of the depositors. But the circulation would have nothing to 
do with the safe-guarding of the depositors. 
Q. Am I right in saying this: When it was discovered that the bank had 
no legal right to issue notes, which was the year 1916, had the c..rculation been 
called in at that time, would not the depositors have been saved the loss?--A. 
No, Mr. Healy, the depositors would have to call it in; they would have to 
sacrifice the like amount in their assets, which, before calling it in, would be a 
protection to them. They would have to give up their protection to that extent. 
Q. I do not know whether you get my point?--A. I think ] do. 
Q. At a certain time in the history of this bank it was discovered that the 
note issue vas entirely illegal, and that happened to be the year 1916. Had 
the note issue been called in at that date, Mr. Justice McKeown finds, and I will 
refer you to the page, that the depositors would not have lost a cent?---A. I can 
hardly credit that Justice McKeown-- 
Mr. ttUGHES: What he says is, if the bank had been wound up on that 
WTF_SS: Not having read the report I would say he mus mean that the 
depositors would not have lost a cent because the asse*.,s of the bank, which do 
not include the circulation would have provided for the relief of the depositors, 
but if the note circulation had been drawn in, they wouid have to have lessened 
those assets to take in the illegal circulation, which would have made their assets 
so much less, as applying to the depositors losses. 
By Mr. Hcaly: 
Q. Here is the statement, on page 20. This is under the heading "Answer 
to question 4". (Reads). 
" (a) Liquidation immediately following such audit or 
" (b) Amalgamation with another bank. 
"And the effect of such audit upon the position of the present deposi- 
tors :-- 
" If made in 1916 the present depositors would imve suffered no 
A. You have not given me anything there about the bank circulation. I claim 
that the bank circulation is altogether apart from the assets. 
Q. Please excuse me; I get your point exactly but you apparently do not 
get mine.---A. Oh, yes, I do, but I do not value it. 
Q. I am sorry, because it is really valued at $2,000,000, in my opinion. I 
claim that whoever was in charge, should have called in the circulation of the 
Home Bank in 1916. Had that been done, the Bank would havc been wound up. 
Is that right?--A. No. 
Q. Surely, if you called in the note circulation?---A. If you called in the 
whole capital-- 
Q. Let me have your opinion, because on the same page I have Mr. Edwards' 
opinion; he says the bank would have lost $3,000,000.A. Anyone knows that 
if the capital is gone the bank is gone. 
Q. Did you answer my question, that had the circulation been called in, 
the bank would have been wound up?--A. Probably, yes; I do not see how it 
could have gone on. 
Q. And had it been wound up at that date the Home Bank depositors would 
not have lost a cent?---A. No, not on account of the circulation. 
Q. The circulation was illegal, and should have been called in?--A. The 
assets would have been reduced. 
[Mr. J. C. Saunders.] 

Q. I think you stated this morning that only once in your memory has 
the rediscount rate, or the rate of interest charged for advances under the 
Finance Act been different from five per cent? Is that right?---A. Yes. 
Q. I think you also stated this morning that on no occasion that you recall 
was the matter discussed in the Treasury Board, as to the propriety of altering 
the rate of interest. Is that right?--A. Yes. I nmy say, if you are going to 
find fault with that, I would be the one to blame. I have not seen the necessity 
for suggesting it to the Chairman of the Treasury Board. 
Q. As a matter of practice, your suggestions and advice on these matters 
and these questions have been accepted by the Treasury Board, have they?-- 
A. I am rather in the habit of saying a good many things, but they are not 
necessarily accepted. 
Q. In regard to the rate of intere.% under the Finance Act, do you recall 
any instance when any member of the Treasury Board suggested a nmdification 
of the ratc?--A. No. 
Q. And you never suggested it yourself?--A. No, I did not. 
Q. Do you recall a condition of inflation during the years, say, from 1917 
to 1920. in this country?--A. I do, but I was not Deputy Minister then, and 
I was not so vitally concerned in these larger questions of finance as I would 
be to-day. 
Q. However, you recall the fact?--A. Yes, I know. 
Q. Do you recall the fact that there was a deflation began in 1920, and 
continued for a year or two? ._. Yes. 
Q. Do you think it night have been good policy on the part of the Treasury 
Board to have lowered the rediscount rate from 1920 on, in order to assist the 
banks in carrying their customers and preventing the catastrophes that 
occurred? ._. Mr. Good, in my judgment, especially after I took the office of 
Deputy Minister of Finance, the banks had margin enough between five per 
cent and what they would probably charge their customers to interest them in 
taking charge of their customers and not allowing them to suffer for want of 
Q. You think, then, that no customers did suffer during that period from 
pressure of the banks?--A. I have no knowledge of it.. 
Q. You have no knowledge of any distress caused throughout Canada by 
pressure from the banks during that period?--A. No. 
Q. In your position you would not be in the way of getting any such 
knowledge ?'---A. No. 
Q. _Not even from reading the newspapers?A. I do not take the news- 
papers very seriously. 
Q. Do you state to this committee that you have no knowledge of the 
charges, if you like, or the protests being made by producers and merchants 
against the policy of contraction of credit during these years?--A. Oh, yes, I 
knew the banks were restricting their credits to conserve themselves, one might 
Q. Did you think that policy of contraction was advantageous to the 
country, or had you no information on that point?---A. I am rather inclined 
to think--I am not an expert in it--that if the banks did not save themselves, 
if they allowed themselves to extend credit, and then went up, it would be 
more damage to the country than any damage which might occur through 
restricting credit. 
Q. But you are not prepared to admit there was any damage done by the 
rapid contraction of credit during that period. Do I understand you to say 
that?--A. I would hardly like to give that as an answer; I would hardly like 
to give my opinion in that respect. 
{Mr. J. C. Satmders.] 

14-15 GEORGE V, A. 1924 
Q. Have you an opinion?--A. I would not express it, because it might not 
be the right one. I do not think I am in a position to judge. 
Q. That is, you may have a tentative opinion, but you have not sufficient 
confidence in it to express it?--A. That is right. 
Q. I do not think it is worth while to pursue this inquiry any further along 
this particular line--A. Very well. 
By 21It. Spencer: 
Q. During your cross-examination this morning, Mr. Saunders, a few 
questions occurred to ne that I would like to ask you. You made the state- 
ment that the borrowings through the Finance Act were a second charge on the 
assets of a bank?--A. Yes. 
Q. Then it would come after the notes, and before the Government 
deposits?--A. :No, it is among the Government claims. First is the call of 
notes in circulation, and then the Dominion Government, and then the Pro- 
vincial Governments, and fourth come the other claims. 
Q. You mentioned that the Finance Act was being used a great deal a 
few years ago, and to-day it was being used little, comparatively speaking?-- 
A. Yes. 
Q. Can you tell me when it is used more, when the country is prosperous, 
or when we have adverse eonditions?--A. It wouhl be used more when the 
country is pros|)erous. n Noember, 1920, as I told you this morning, that 
was the peak of all the years. The banks had loans under the Finance Act 
amounting to $123,000,000. If you will, lIr. Spencer, in 1920 everything 
was booming; it was after the war and there was inflation in prices and busi- 
ness xvas booming a little, which nat.urally required more money. The dollar 
was worth less., and it required more dollars to carry on business. 
Q. That was my opinion. Then, Mr. Saunders, you would say that the 
banks find it profitable to borrow through the Finance ActJ?--A. I think they 
find it more useful in being able to meet business that is offered to them, when 
their own resources would not permit. They cannot find it vet.w profitable, 
because they are so eager to get it back into our hands to save the five per 
cent interest rate. 
Q. Otherwise, when business is booming, they are only too ready to make 
loans, and they deposb the securities xvith the Treasury Board?--A. Yes. 
Q. You said that the banks made the most use of this privilege through 
having large legals for elearings?--A. Yes. 
Q Rather than placing the Dominion notes in the Gold Reserve and 
issuing their own notes against them I think the inference you left was that 
they used the most of them for clearings.--A. For both purposes, but in a great 
many eases just for bank clearings. That xvould be to save turning in their 
own small notes and taking them to the Clearing House to liquidate their 
Q. At the same time, in round figures, I believe we have about $9,000,000 
in the Gold Reserve and about $50,000,000 in notes and paper?---A. Yes. 
Q. Then would it not be more correct to call it a " gilded " reserve, rather 
than a Gold Reserve?--A. Call what a gilded reserve? 
Q. The place we now call a Gold Reserve?--A. What is in a name, any- 
Mr. MCMASW: " A rose by any other name would smell as sweet." 
Bg Mr. Spencer: 
Q. You mentioned in answer to a question this morning when the discus- 
sion turned on the subject of the Mint, that during the war there was too much 
money in circulation. What sort of money would that be?---A. During the 
[Mr. J. C. Saunders.l 

war there was too much money in circulation? I hardly think I made tlmt 
Q It was with reference to Mr. Shaw's question with regard to the Mint. 
--A. Yes; during the war there was not too much, because it was needed for 
the business, or it would not have been asked of us, but there was too much put 
in circulation for present-day requirements. We do not redeem silver; t},at is 
the trouble. 
Q. It was silver you meant when you said that?--A. Too much silver, I 
think I said. 
Q. How do you know there is too much silver moncy?--A. We know how 
much silver is issued. 
Q. But how would you know when there was too much?--A. The banks 
complain, trying to get us to take it back. 
Q. You mean the people would not use it, and put it back in the banks?-- 
A. Surely, and the banks could not get it out. 
Q. Have you, Mr Saunders, in your official position, anything to do with 
the Pos Office Savings Bank? A No. That is administered by the Post 
Office I)cpartnent entirely. 
Q. You would not like to give an opinion as to the policy of the Post Office 
Savings Bank?--A. :No. I mentioned this morning or this afternoon that the 
Post Office was nodifying its rules and regulations about withdrawals, so as 
to make it a little easier for the smaller depositors to withdraw than it has 
been hitherto. 
Q. I think, in answering a question of Mr. Healy's, you said the notes of 
a private bank were no liability on depositors?--A. Yes. They are no direct 
liability on depositors. 
Q. Suppose we decided in Canada to have a Govermnent issue of notes only, 
and the only paper out was Government paper; when a bank went smash like 
the Home Bank; when their own notes out, their own private notes were out in 
circulation, would not the depositors be better off?--A. :Not a bit. The bank 
would get these Dominion notes, they would have to give value out of their 
assets. It is the same relation; it does not matter whether they are Dominion 
notes or bank notes. 
Q. But with a private issue of notes, is it not a fact that the notes are the 
first call on the assets of the bank? A. Yes. 
Q. And part of the assets of the bank are the depositors' accounts?--A. Yes, 
and others. 
Q. And therefore the private notes of the bank are a call on depositors?---A. 
Q. But if there were Government notes issued instead of private notes, they 
would not be a call on depositors?--A. I do not like the word depositors; it is 
a call on the assets. 
Q. The responsibility would be on the Government?--A. The responsibility 
would be on the Government--. 
Q. To meet the notes?--A. If they held Dominion legals or Dominion notes 
of the Government, that would be a good asset, because the Government would 
redeem them at once. 
Q. Therefore, the depositors of a failed bank would be better off if we had 
a Government issue or monopoly of note issue than they are with a private issue? 
--A. Not at all. If they had Dominion notes in their possession and brought them 
in to us to redeem them, they would be reducing their assets by that much. 
Q. Dominion notes would be a liability on the government and not on the 
bank?---A. Yes, but their assets have not been benefited at all. 
[Mr. J. C. Saunders.] 

By Mr. Irvine: 
Q. I understood you to say--you will correct me if I am wrong--that the 
circulation would not affect the relation of the assets of that bank to its liabili- 
ties?A. To its liabilities, no. 
Q. It would not affect it.?--A. No. 
Q. But. if the circulation of the bank had been called in, it would have 
forced the winding up of the institution, would it not?--A. Perhaps you are 
missing this point, if the circulation had been called in, it would have had to be 
done at the expense of the assets. 
Q. Never mind the assets; just answer my question. If the circulation of 
the bank had been called in, would that have involved the winding up of the 
institution? I imagine you could answer that yes or no? A. Supposing the 
banks did not call in their circulation, and did not want any circulation, and 
yet their capital was all right-- 
Q. Let us come to the Home Bank; supposing that the Home Bank's circu- 
lation had been called in by some authority, or by the bank itself in 1916, would 
or would not that have implied the winding up of the institution?--A. Natur- 
ally, I think the institution would have to be wound up, yes. 
Q. If the institution had been wound up by calling in its circulation in 1916, 
are you in agreement with the finding of the judge that the depositvrs would not 
have lost anything?--A. I do not know; he had the evidence, and he has made 
that finding. 
Q. You will not quarrel with the evidence?---A. I must take that for 
granted. The difference is, I do not agree that the circulation had anything to 
do with it. 
Q. I agree that the circulation has nothing to do with the assets and liabili- 
ties of a bank; you have said that. I am not interested in that question at all. 
The point is, if the circulation had been called in the bank would have been 
wound up?---A. Yes. 
Q. If the bank had been wound up in 1916, there would not have been the 
same loss; as the judge says, no loss at all to the depositors?--A. I accept that, 
coming from the iudge. 
Q. Had you any power to call in or cause to call in the circulation of the 
ttome Bank?--A. No, we did not know. 
Q. If you had had information, had you any power to act?---A. Well, the 
power we have would be immediately to send in our auditor under section 50 
(a), and if we found it in that state, we would have applied to the Bankers' 
Association to appoint a curator and put him in the bank, as was done in the 
Home Bank, because :Mr. Barker was put in by the association. 
Q. What excuse have you to offer for the department that the institution 
was not wound up in 1916? A. There was no evidence before the department 
that anything was wrong. 
Q. Therefore, despite the profound faith which you have expressed in the 
bankers, it is possible for them to have a larger circulation than their unim- 
paired capital would permit, without your knowing anything about it? A. It is 
ssible, because it has happened, but it should not happen. It would be only 
avery that would do it. 
Q. We all know it should not happen, but it may be happening right now? 
--A. I do not think so. 
:Mr. IRWE: Thinking does not make it different, you see. It has been 
[Mr. J. C. Saunders.l 

14-15 GEORGE V, A. 1924- 
By Mr. W. F. Maclean: 
Q. We had under examination here an ex-Comptroller of the Treasury of 
the United States, and also an acting 'bank examiner in the United States. Did 
you read their evidence?---A. I heard Mr. Williams' evidence. 
Q. Did you hear them say ,that if, as a 'bank examiner, he found there had 
been an illegal issue of currency, or that the bank could not meet its obligations, 
he would give them so many days to make good their condition as a bank, or 
else he would order them to close their doors. Do you think it would be a 
good action in the interes'ts of the public if we had an officer of that kind in this 
country?A. We have that power yet, Mr. Maclean, have we not? 
Q. We did not exercise it in the Home Bank case?--A. We did not know. 
Q. They have an officer in Washington and if he made an investigation and 
found things wrong and unless they were able to make good the assets of the 
bank, he would close their doors forthwith?A. Yes. 
Q. You heard that evidence?---A. Yes. 
Q. If we had such an officer today in this country-- 
An Ho. MEMBER: We are going to get it. 
Mr. MACLEAN: Yes, and I want to give the Minister and our friend here 
credit for it. The point is there was an officer in the employ of the Government 
of the United States connection with the Treasury to take this instantaneous 
action when a bank was found to have exceeded its powers, or to have lost its 
assets, of making good those assets or the bank would be closed forthwith. 
Hon. Mr. ]:OBB: Have they always had that option? 
Mr. W. F. lkI-CLF.N: They have it now, and my friend is going to appoint 
an inspector. He said that we did not need to follow foreign organizations, and 
he is being forced to follow them. 
The C.mM: Order. 
Mr. W. F. MACLEAN: The Minister asked me a question. Call the Minister 
to order please. 
The CmM: Would you kindly go on Mr. Maclean? 
Mr. W. F. MACLEAN: I am through with my examination. 
By Mr. Healy: 
Q. You say that the Department had no knowledge of the condition of the 
Home Bank in 1916? A. No. 
Q. Is the Minister of Finance part of the Department?--A. He is the head 
of the Department, but he has his own department by himself. As I told you 
this morning, any knowledge he may have does not necessarily come to me. 
Q. I have your answer that he is part of the Department?--A. He is . very 
important part of it,. 
By Mr. Good: 
Q. Mr. Saunders states, he gives it as his opinion, that if the circulation of 
bank notes had been called in, the bank would necessarily have been forced to 
wind up. I want to ask him whether or not it would be possible or likely for 
a bank to get along with Dominion notes if all its loan notes were replaced by 
Dominion notes?---A. The reason .that a bank would have to close up if it 
called in its circulation is, , take for granted that it has to be called to comply 
with the Act because it has not any paid-up capital to stand behind it. 
Q. It would be only a sympton of insolvency?--A. Yes. 
By Mr. Ward: 
Q. I think the witness said a few minutes ago that amendments that were 
added to the Bank Act last year would save the banks from themselves, so to 
[Mr. J. O. almder$.] 

are willing to put it in, but I would not say that they are anxious to go out 
and compete with anybody else. I would not like to say that. 
By Mr. SaGes: 
Q. What steps would they take to bring the savings banks to the attention 
of the public? Is there any advertising?--A. Yes, there has been advertising. 
There have been posters put in the post offices giving the information, and 
readers in the newspapers pointing out the advantages of using the post office 
savings banks. 
By the Chairman: 
Q. When was the system introduced?--A. I think in 1868, just after Con- 
Q. 18687---A. Yes, I think that was the year. 
Q. Can you quote the statute?--A. No, not offhand'. I do not think I have 
it in any of the papers I have here. I see Mr. Ross here; perhaps he might 
remember the statute. 
Q. Was there any considerable change in the legislation respecting post 
office savings banks?---A. No, I do not remember any change except a change 
in the rate of interest at one time, a long time ago. 
Q. The fundamental legislation is the same?---A. Yes, the objects were the 
By Mr. W. F. Maclean: 
Q. How do you compare with the British Post Office Savings Bank, or the 
American Post Office Savings Bank?---A. In which way? 
Q. Are you as much up to date as they are?--A. We claim to be. Of 
course, the British and the American Savings Banks--in the American banks 
the rate of interest is not as high as I understand it. 
Q. What is yours?--A. Ours is three. I am not giving that as information, 
but just as an impression. 
By Mr. Benoit: 
Q. What is the amount deposited in the Canadian Post Office savings 
banks?--A. About $25,000,000, a little over $25,000,000. 
Q. Was there an increase this last year?---A. Yes, there was an increase 
in the last year. 
Q. An increase of how much?--A. It increased a little short of $3,000,000 
during the year. 
Q. Owing to the Home Bank?--A. Well 
By Mr. W. F. Maclean: 
Q. What is the rate in the British Post Office Savings Bank? A. I have 
not that here. 
Q. What is the limit of your deposits--the smallest and the largest?-- 
A. You can put in one dollar and you can deposit up to $5,000. 
By Mr. Spencer: 
Q. How much can you put in in one year?--A. Within one year, I think 
it is $2.000. As I say, I am not charged with the operation of the savings 
banks; I am charged with the accounting. But I can correct these figures. I 
am just saying $2,000 from memory. 
By Mr. W. F. MacIean: 
Q. How does a man withdraw his money? What does he have o go 
through?--A. He makes an application to the local post office. 
[Mr. Austin Bill.] 

14-15 GEORGE V, A. 1924 
Q. He signs something?--A. He sign.s an application, yes, and sends in his 
pass-book to the head office for the withdrawal of over $25. Under $25, under 
an arrangement made last year, he can make a withdrawal at the local post 
office and have it checked up there. Above that amount, the pass-book has to 
be sent to Ottawa, where the account is verified, and the cheque is sent to the 
postmaster, who delivers it to the depositor. 
Q. It takes how long to do that in Ontario?--A. If it is one day's mail, t 
would take one day to come up and one day to go back. It would be dealt with 
here immediately. 
Q. It is a two days' proposition anyway?--A. Yes. 
Q. And in British Columbia it would be a ten-day or twelve-day proposi- 
tion ?--A. Yes. 

By Mr. Millar: 
Q. Are these post office savings banks ever withdrawn because of competi- 
tion with the chartered banks?--A. I know of no withdrawals of that kind. 
They might be withdrawn because the depositors may have taken out their 
money and put it in some other place. 

By Mr. Garlar: 
Q. Is it regarded by the department as entering into competition with the 
chartered banks if you establish a post office savings bank in a small town?-- 
A. 1o, it is not regarded as competition at all. 
Q. That does not enter into the policy of the department?--A. No, no, they 
would not regard it as entering into competition to put in a savings bank where 
there was a chartered bank. 
Q. Wha.t are the considerations that govern the establishment of post office 
savings branches? A. Generally speaking, the need of the community for it 
shown in different ways. That is, it may be shown by the fact that it is asked 
for. It may be shown by the fact that the inspector of the Department sees 
that it is needed. 
Q. In the event of a district deciding through, we will say, its municipal rep- 
resentatives or a town council or some other representative body of citizens that 
it should have a post office savings bank established in that district, would the 
post office authorities accede to that request?---A. They would most likely 
accede to it. 
Q. If they did not, what consideration would they weigh? How does your 
Department decide whether to establish a post office savings branch or not? A. 
Well, the first thing you would look at would be the size of the community 
asking for it. The second would be--and that would be wrapped up with the 
first propositionthe ability of the present postmaster to do banking business. 
He might not have been chosen because of his ability to do banking business. 
I think these would be about the only thing that the Department would have 
to decide, apart from the representations made 'by petitioners or by the inspector. 
Q. Have any representations ever been made to your Department by the 
chartered banks or any protest against competition, or suggesting withdrawal?-- 
A. No. I know of none. If they have been made, they have been made perhaps 
to the Minister who has not told the officials of the Department. I have known 
of none where the banks have suggested that we withdraw. 
Q. Have you had any protests or suggestions?--A. No, I know of no 
Q. No protests at all?--A. I know of none. 
[Mr. Austin Bill.l 

By Mr. Sales: 
Q. Would you see that correspondence in your capacity as accountant? 
Would that .come before you at all?--A. It might not come before me, but a good 
deal of it would. That is, it would affect the accounts of the office, and probably 
be on the general file. 
Mr. SALES: The witness said he was not responsible for the operation of the 
savings branches, that he is the accountant. 
By Mr. Garland: 
Q. Has the Department closed any post office savings banks in the last 
year?--A. They are continually 'being closed down and opened and re-opened. 
Q. What is the most common ground on which you close your branches?-- 
A. 'Common ground? 
Q. Yes.---A. One of the grounds would be perhaps a change of postmaster 
and that they felt that perhaps that would be better kept closed until we found 
out how the new postmaster was acting. Of course, that would be in a small 
place, not in a large place. In that case there is n,o doubt that the postmaster 
is not alwa.vs so closely in touch personally with the office in a large place. I 
am speaking of the small places. 
Q. In a case of that kind would not the closing up cause a good deal of 
dissatisfaction among those who had money deposited in the local savings 
branch? You suggest that it is decided sometimes on a change of the post- 
master?--A. Possi'bly, yes. 
Q. Is that not likely to make it rather inconvenient to the depositors in that 
place?--A. You must remember that this would take place in a town of very 
small size. In the larger places the order of procedure is more set. The post- 
master has competent assistants to carry on for him. 
By Mr. Irvirte : 
Q. Would you suggest that in the appointment of postmasters the author- 
ities do not take into consideration his possible capacity as a banker?---A. That 
would be in an appointment of a postmaster to an office that was not a savings 
bank office. A banker--you must use the term very guardedly, bause he is 
not discounting notes or anything like that. 
By Mr. Garland: 
Q. You mentioned that $25,000,000. was the total amount now on deposit? 
--A. Yes. 
Q. Do you not think that that is a very small amount for between 1,300 and 
1,400 post office savings banks in Canada? A. It is. 
Q. Do you not think that a policy could be established to extend the 
influence of the post office savings bank so that we would have greater deposits 
than that?--A. Well, if it were desired, you could do lots of things like that. 
Q. Do you think it is desirable?--A. That is a point that would take up 
a whole day's discussion. . 
Q. I am simply asking you for your o'pinion as an expert in the Depart- 
ment? Do you think it is desirable that the post office savings bank business 
should be extended in this country?--A. You are asking my opinion, personally. 
I think that the Post Office has no reason to go into competition with any 
existing means of giving service, but to supplement any service that is given 
at present. 
Q. You have just told me that there has never been any protest on the 
part of any representative financial institution regarding possible competi- 
tion?--A. Regarding possible competition, yes, so far as I know. 
[Mr. Austin Bill.l 

14--15 GEORGE V, A. 1924' 
portion of the liquid capital of the country, have you ever thought of what the 
effect would be upon the business and industrial communities? A. It has been-- 
Q. Have you given any thought to the effect of such a policy?--A. I have 
thought of it. 
Q. And what is your conclusion?--A. My personal conclusion? 
Q. Official or personal?--A. Officially, I have never been called upon to give 
an answer. 
Q. Personal then?---A. Personally, I should think that if the Government 
got hold of the money in trade that goes into the banks, I think it would be a 
little inconvenient to the country. 
Q. The liquid capital that is now used in the commercial and industrial life 
of the nation, if that was taken by the Government for Government purposes, 
what in your opinion would be the effect on the country?--A. That is a pretty 
big question. 
Q. I know it is a big question?---A. You can imagine what would be the 
effect at any time if you take a water supply from its ordinary channels and 
put it into a new channel; the new channel may be the bes channel for it to run 
in, but it would be inconvenient-- 
Q. The new channel would be inconvenient?---A. It might be the best 
channel to run in, but it would be inconvenient to take it out of the old channel. 
Q. Do you say that it would be the best channel by absorbing it?--A. Your 
question was what would be the effect? 
Q. On the industrial and commercial life of the country? 
Mr. W. F. ]VIAcLAN: And on the banks. 

By Mr. Hughes: 
Q. I will include that, on the banks and on the industrial and commercial 
life of the country. 

By Mr. Sales: 
Q. There would not be any less money in the world, would there? A. I do 
not suppose there would be. 

By Mr. Coote: 
Q. Are you aware that one of the chief aims of this Committee is to safe- 
guard the interests of depositors generally? A. I suppose so. 
Q. You are not sure? A. I was not told that, but I suppose that would 
be the aim of any Committee of the House. 
Q. Have you ever known of any loss to any depositor in the post office 
savings banks? Would it be possible for a depositor to lose his deposit in the 
post office savings bank? A. I cannot see how he could lose it, because the 
Government would be responsible for the action of its employees, and if there 
is any mis-appropriation of accounts, it would be made good to him. 
Q. Just a question or two with regard to the operation of the post office 
savings bank. In case the depositor wished to withdraw up to $25, would you 
explain to the Committee just how he gets his money?---A. He goes to the 
local post office where he has deposited his money, where his pass-book shows 
the stamp of his deposit; he presents that pass-book to the postmaster, and 
says he wishes $25 or an amount up to that, and the postmaster, having looked 
over his book and seen what the balance is to his credit pays him over the 
$25. This is a mere convenience to the public recently in order to popularize 
the scheme. , 
Q. What does the postmaster do with the depositor's pass-book? A. The 
postmaster would put in an entry there, a notation of the withdrawal, and he 
[1W.r. Austia Bill.] 

would report the matter at once to Ottawa where the man's account, is kept, 
and he would be charged with the $25 or whatever the amount is, at Ottawa. 
By Mr. W. F. Maclean: 
Q. He has to send to Ottawa? A. This is not a wthdrawal from Ottawa, 
this is a local withdrawal that he is speaking of. 
By Mr. Coote: 
Q. How many wit.hdrawals of this kind would he be allowed to make? Is 
there any limit?---A. He would not be allowed, I think, to make more than one 
a day. The idea is to limit the withdrawal to $25. If a man made a withdrawal 
of $25 in the morning, and came back in the afternoon for another $25, he would 
be considered by the postmaster--I do not think the case has arisen, but if it 
did arise, the postmaster would say "You are really violating the intent of this 
Q. Is there anything in the regulation which states, that he cannot withdraw 
twice in a day?--A. I do not think there is, but I think that is a thing which is 
left to the interpretation of the man who is administering the work. 
Q. Do you see any real objection to a proposal to increase this amount 
which you may withdraw at the local office? A. Under present conditions, 
there would be because this amount of $25--the Government is willing to take 
a chance up to $25 but there must always be a certain element of chance when 
the withdrawal is made at a point where the account is not kept. 
Q. What is the limit to the amount of a money order that may be issued 
at that office?---A. One hundred dollars. 
Q. Then what objection would there be to placing the limit at $100 in this 
regard? Would there be any more reason for the Department taking a chance? 
--A. In the case of a money order, you must remember that they get $100 and 
issue an order on any post office up to another $100. That cannot be d-upli- 
cared in any way except by a clear case of fraud and of course we will except 
that. It cannot be duplicated, and I think there is a perfect check on the trans- 
action from the moment it comes in until it is paid out. There is not under the 
present scheme a perfect check on withdrawals. It is a transaction upon which 
the department must take a little risk. 
Q. What would be the objection to increasing the amount which a man may 
deposit in a post office savings bank? You understand that we are considering 
measures which would tend to increase the safety of depositors. What is the 
objection to increasing that amount, or why should there be any objection?-- 
A. There is. no objection that I can see. Some one has asked that the Post- 
master General appear before the Committee and whatever the objection may 
be, it would be better for him to give an answer. 
Q. As an employee of the department, what do you think the objection 
would be? A. :None from a borro.ving standpoint as long as we kept the 
accounts here in Ottawa. If you kept local accounts, as has been suggested. 
By Mr. W. F. Maclean: 
Q. Is there a local ledger?--A. No, there is no local ledger. 
By Mr. Coote: 
Q. Supposing there is no local ledger, can you tell the Committee what 
difficulty there woulld be in the way of operation?---A. There would be no more 
difficulty in handling a $10,000 account than a $5,000 account. 
[Mr. Austin Bill.] 
1 --38 

14--15 GEORGE V, A. 1924 
Q. I would like to be clear on one point. The rate that is paid is three 
per cent, and I understand you to say that the cost of administering was one 
quarter of one per cent, plus ne-tenth?---A. That is a commission paid to 
the postmaster. 
Q. That one-tenth would be added to one quarter of one per cent?---A. Yes. 
Q. Making 3.357--A. That would not be the cost. That is only a commis- 
sion on the deposits. 
Q. What would represent the total cost over and above that? A. We regard 
one-half per cent as the cost of administration at the present time. 
Q. That is, three and a half per cent represents the total cost to the Govern- 
ment on the $25,000,000 of which they have the use, and the Government pays 
five and a quarter per cent. In order to extend the facilities for post office 
deposits, what would your opinion be in regard to paying say four per cent 
for deposits? Would not that be a step towards extending the system and 
bringing in money for use by the Government a.t a cheaper rate than they are 
at present paying?--A. Of course, I think that is a question that should really 
be answered by the Finance Department, because they are the borrowing 
Department. We only offer facilities for depositors. 
Q. I will riot press that question. In regard to the point raised by Mr. 
tIughes as to the effect on the business of the country by all this money going 
into the hands of the Government, is it not a fact that when this monev goes 
into the hands of the Govermnent it is not put in a big box and locked up? 
Does it not go to build harbours and docks and so on?-- It is not put in a big 
chest and locked up.V---A. qo. 
Q. It is circulated through the country .iust as if it went into a bank?---A. 
Q. The money is kept in circulation? Therefore, it would seem to me that 
the best way of extending the post office savings business would be to increase 
the rate say to three and a half or possibly four per cent, and then there would 
be a greater supply of money placed on deposit for the use of the Government 
at. a cheaper rate than they are paying now?--A. I was not asked a question 
regarding that. 
By Mr. Garland: 
Q. Continuing that same point, I would like the witness to tell us the process 
followed. The post office savings bank in a town, East or West, takes in deposits, 
thrift savings you call them, up to $2,000 for one year with a limit of $5,000. 
What happens to that money taken on deposit? What does the local postmaster 
do with it?---A. Well, if he has no use for it for money orders or anything over 
his counter, it goes to some bank. 
Q. In other words, it is again available for loaning by the bank?--A. No, 
the banker sends a draft to Ottawa and we have the money transferred to the 
Government account here. 
Q. Do you have it transferred right away?--A. As soon as we can get it 
transferred, as soon as the draft gets here. 
Q. So there is a complete transference of the people's savings to Ottawa 
from all parts of the Dominion?---A. Yes, except what is not needed for local 
purposes. If there are money orders to be cashed at that place, the postmaster 
would use that money. 
Q. rhat is your regulation in that regard? What amount is kept on deposit 
in the local bank?--A. There is nothing kept. there except what he may see need 
for to cash orders. 
[Mr. Austin Bill.] 

Proceedings only. General index on following pages. 

10. Capital Stock--Mr. Coote, cxcvi. 
13. Stock subscription--Mr. Coote, cxcv. 
36. Sale of sharesMr. Shaw, cxc. 
54. Profit and Loss Account--Mr. Spencer, cxcvi. 
56. Inspection (adopted)--Hon. Mr. Robb, x, xi, clviii, elxiii, clxx to cLxxlv 
61. Note circulation--Mr. Coote, clxviii, clxix, cxcv. 
76. Limitation of Deposits--Mr. Garland, cxcv. 
76. Loans to Directors (adopted)--Mr. Garland, cxcii. 
88. Notice of intention to give security--Mr. Spencer, clxiii, clxxxix. 
113. Notice of deposits and loans--Mr. Coote, civil, clxxxvii. 
125. Transfer of shares--Mr. Hughes, cliii. 
125. Impairment of Capital--Mr. Coote, cxci. 
125. Double liability of shareholders--Mr. Ladner, cxliv, clxxxvi. 
131. Note circulation redemption fund--Mr. Spencer, el, clxxvi, clxxxv. 
131. Priority of Government Deposits--Mr. Hodgins, clv., clxxxvi. 

Schedule "G "-Assets--Mr. Garland, eli. 
Limitations of loans--Mr. Coote. clviii, clxxxviii, clxxxix. 
Notice of non-responsibility of Government--Mr. Cootc, clvii, clxxxvi;. 
Bank Capital--Mr. Coote. cxci, cxcvi. 
Central Reserve Bank--Mr. Shaw, ix, cxliv to cxlvi, cli, clii, cliii, clxi. 

Proposed amendment to Bankruptcy Act (adopted), pages xv, clxxxiv, clxxxv, excvii, 

Propod amendment to Post (:)ffice Saxings Bank Act, pages clv, clxiii, clxxii. 


INDEX 403 

Report to House (No. 16), re Proceedings---- 
xv, cxcvii. 
Report to House (No. 17), re Bankruptcy 
Act--xv, cxcvii, cxcviii. 
Reporting of Evidence--cxlix, cl; Mr. Coote, 
clviii, clxxxviii, 16, 75. 
Tory Report referred to--vi, cxliii, 116. 

Powers of---Mr. Pole, 111, 112, 139; Mr. 
Williams, 155, 157; Mr. Edwards, 313; 
(See also "Finance Minister "). 

Agricultural Corporation--Mr. Pole, 133. 
134; Mr. Tory, 225. 
Control of--Mr. Edwards, 33, 37, 46; Mr. 
Pole, 122. 137, 142. 146, 148; Mr. Wil- 
liams, 162, 163, 174, 175, 177 to 180; Mr. 
Finlayson, 193; Mr. Tory, 232, 29, 242. 
247, 249; Mr. Neill. 272, 274, 276; Mr. 
'Saunders, 349, 375. 376; (See also " In- 
terest '9. 
Bank--See " Note circulation" and "Bank ". 
Comptroller of--Mr. Pole. 111, 112, 139; Mr. 
Williams, 155, 157; Mr. Edwards, 313; 
(See also "Finance Minister"). 
National, Canadian--Mr. Edwards. 61. 62: 
Mr. Pole, 144; Mr. Neill. 261, 271, 276. 
277, 282: Mr. Edwards, 310; Mr. Ro.. 
319 to 321, 334, 336; Mr. Saunders, 349, 
353 to 355, 358, 374, 376 to 378; Mr. 
384, 385. (See also "Note circulation.") 
National, United States--Mr. Edwards, 46. 
53, 54; Mr. Pole. 98, 99, 118, 125 to 127. 
136, 138; Mr. Williams, 177 to 179; Mr. 
Saunders. 353, 354. 
tdjustment Bureau--Mr. Tory, 294, 295. 
Acceptance, limiting of--Mr. Garland, cxcv. 

Bank, Safety of--vi, vii, x, xi, exli, elviii. 
clxiii, elxx to elxxiv: Mr. Edwards. 5, 9 
to 15. 19 to 38, 43, 48 to 51, 53 to 57. 
Mr. Stavert, 64 to 67, 69 to 71: Mr. Vien. 
76: Mr. Pole. 95, 110, 111. 114, 116, 117. 
135, 144 to 147; Mr. Williams, 153, 157. 
159. 160. 166 to 16, 175, 179, 181; Mr. 
Robb. 185, 186; Mr. Finlayson, 187 to 
205; Mr. Neill, 250 to 285; Mr. Robb. 
299 to 301; Mr. Edward., 304 to 306, 308 
to 310. 312. 313. 315: Mr. Ross. 324 to 
326. 332. 333, 338; Mr. Saunders, 351. 
362 to 367, 383: Mr. Bill, 394, 395. 
Centres--Mr. Neill, 265. 
Guarantee of--Report to House, xiii; Ex- 
hibit, exxxvii; Mr. Ladner, exliv; Mr. 
Shaw, exliv; Mr. Ladner, cxlvii, elxi. 
elxxxvi, elxxxix, cxe; Mr. Edwards, 20. 
33, 34. 3S, 42. 43, 56. 57; Mr. Stavert, 71: 
Mr. Pole, 96, 97, 99 to 104, 1ll; Mr. Wil- 
liams, 160, 169 to 172; Mr Finlayson, 192 

193, 197. 198, ?A;0 to 203; Mr. Neill, 25S 
to 261, 284, 275, L2']8, 279; Mr. Finlayson. 
339 to 343; Mr. Bill. 397, 398. 
Government--Mr. Hodgins, clv, clxxxvi; 
Mr. Edwards, 44; Mr. Stavert, 67 to 69: 
Mr. Pole, 113; Mr. Neill, 261; Mr. Robb, 
300; Mr. Finlayson, 339; Mr. Saunders, 
376, 377, 379. 
Home Bank Committee--&iv, clxi, clxii, 
clxiv to clxviii, clxxx, cl,-xxi; Mr. Lee, 
3S3, 384. 
Bank--Mr. Neill, 254, 255, 257, 267, 268, 280; 
Mr. Edwards, 303, 304. 
Agricul(uml Credit in--Mr. To.ry, xliv 
lxiv, 20S to 211, 214. 231, 244, 290, 296. 
Bank, on, cheques--Letter, 
List of--cxxvii. 
Reserve system (U.S.)--See under "Bank ". 
Act, Application of--Mr. McQuarrie. clvii. 
clxi; Mr. Edwards, 46, 55; Mr. Pole, 128, 
129. 132, 133. 137 to 140. 143 to 146; Mr. 
Williams, 180, 1S1; Mr. Tory, 240; Mr. 
Neill. 264 to 267, 272, 277, 282 to 284; 
Mr. Too', 289: Mr. Robb. 301; Mr. Ros.. 
318 to 321, 326 to 328; Mr. Saunders, 343 
to 349. 354 to 356, 358, 360, 361, 368, 375. 
376. 379. 
Minister. auditors' report to--Mr. Edwards, 
8. 11, 12, 24. 25, 29. 34, 60; Mr. Williams, 
161; Mr. Neill, 262, 28'2, 283; Mr. Ed- 
wards, 308, 309. 
Minister. powers of--Mr. Edwards, 8 to 14, 
21, 24, 25. 28, 29, 32, 34. 60; Mr. Pole, 
139: Mr, Williams, 161; Letter, 184; Mr. 
Finlayson. 192: Mr. Neill, 250 to 252, 262, 
2S0 to 283, 285; Mr. Robb, 300; Mr. 
Edwards, 08, 309, 311; Mr. Ross, 322, 
326; Mr. Saunders, 351. 352, 354, 357, 363, 
364, 366, 367, 374, 381, 383. 
Basis, Canads--Mr. Neill, 285, 286; Mr. 
Saunders, 359. 360. 
Reserve, Canadian--Mr. Pole. 145; Mr. 
Neill, 265 to 267. 275, 277, 282, 283; Mr. 
Ross, 318, 320, 330; Mr. Saunders, 349, 354, 
355, 367, 376; Mr. Bill, 397. 398. 
Reserve, United States--Mr. Pole, 118; Mr. 
Williams, 180, 181; Mr. Saunders, 355. 
Bank Inspection--See " Inspection" and 
'" Notice." 
Deposits, priority of--Mr. Hodgins, clv, 
clxxxvi; Mr. Edwards, 44; Mr. Stavert, 


67 to 69; Mr. Pole, 113; Mr. Neill, 261; 
Mr. Robb, 300; Mr. Finlayson, 339; Mr. 
Saunders, 376, 377, 379. 
Savings Banks--Mr. Pole, 104, 105; Mr. 
Williams, 172; Mr. Robb, 300; Mr. 
Saunders, 369, 370: Mr. Bill, 393. (See 
:dso under "Post Office.") 

Deposits, of--See under "Bank" and "De- 

Bank's, deposit not made in--Mr. Edwards 
Bank's, loans not made by--Mr. Edwards 
Bank's reserve--Mr. Edwards, 46, 49. 

Addresses to Committeeclxviii, clxvii, 
clxxviii, 384. 
Audit of--Mr. Edward,s, 8. 13. 14, 21, 25, 26, 
41, 42, 53; Mr. Neill, 28-i; Mr. Edwards 
308 to 310; Mr. Ross, 318; Mr. Saunders. 
351, 357. 
Bankers' Association member--Mr. Ross 
317 to 338. 
Depositors' Relief Committeecliv, clxi, 
clxii, clxiv to clxviii, clxxx, clxxxi; Mr. 
Lee, 383. 384. 
Finance Minister. responsibility of--Mr. 
Edwards, 21. 
Financial strength--Mr. Edwards, 8; Mr. 
Finlayson. 194; Mr. ]eill. 249 to 252, 284, 
285; Mr. Edwards, 306, 310 to 312, 315; 
Mr. Ross, 317, 318, 321 to 325, 331 to 335, 
Mr. Saunders, 350, 362, 370 to 374. 
Liquidator's Report--clxxviii to clxxx. 
McKeown Report, (Reprinted)--xvii to xl. 
cxliii; Mr. Neill. 284; Mr. Ross, 322, 323: 
Mr. Saunders, 370 to 374, 380. 
Reference--vi, vii, cxli, clxii, 116, 117. 
Rcports to House--x to xiii, clxxxiii, cxcv. 
Shareholders' Committee--cliv, clxxviii. 
Sub-committee--cxli, cxlii, cxlvi, clxii, clxviii, 
clxix, clxxxi to clxxxiii. 

Government, Canada--Reference, vi; Re- 
port to House, x, xi; Mr. Robb, cxli. 
clviii, clxiii, clxx to clxxiv; Mr. Edwards, 
9 to 15, 19 to 38, 43, 49, 53, 57, 60; Mr. 
Stavert, 64 to 66, 69 to 71; Mr. Pole, 95. 
110, 111. 114, 135, 144 to 147; Mr. Wil- 
liams, 159, 160. 166. 167, 181, 185, 186: Mr. 
Finlav.son. 187 to 205; Mr. Neill, 250 to 
285: Mr. Robb, 299 to 301: Mr. Edwards. 
304, 305, 308 to 310, 312, 313; Mr. Ross. 
326, 332, 338; Mr. Saundem, 351, 362 to 
367, 38.3. 
Government, United States--Mr. Edwards. 
23, 24, 43: Mr. Stavert, 69; Mr. Pole, 76 
to 149; Mr. Williams, 151 to 182; Mr. 
Neill, 261, 262, 280: Mr. Robb, 300. 
Internal by bank officers--Mr. Edwards, 9. 
10, 23 to 32, 49, 52. 60; Mr. Stavert, 64, 
72; Mr. Pole, 95, 96, 108 to III, 113, 

Mr. Williams, 160, 161, 168; Mr. Neill, 
250, 263, 264, 281; Mr. Ross, 326, 327; 
Mr. Saunders, 363. 
Trust and Loan Companies--Mr. Finlayson, 
187 to 205. 

Deposits, of--See under "Deposits" and 

Rale--Mr. Finlayson, 200; Mr. To-y, 212 to 
214, 216, 217, 221, 222, 224, 228, 230 to 
233, 235 to 239, 241 to 243; Mr. Neill, 272, 
274, 282; Mr. Tory, 286, 289 to 291, 296, 
298: Mr. Ross, 320, 330, 331: Mr. Saun- 
ders, 348, 349, 358, 375; Mr. Bill, 387, 392, 
393, 396. 

Agricultural Credit--Mr. Coote, clvi; Mr. 
Shaw. civil, clviii, clxi, clxix; Mr. Coote, 
elxxxvi, cxcv; Mr. Tory., 239, 242, 243, 247, 
248; Mr. Neill. 268, 269; Mr. Tory, 286 
to 290, 293, 294, 296 to 298. (See also 
"United States.") 
Shreholders' double--Mr. Ladner, cxliv, 
elxxxvi; Mr. Edwards, 5, 6, 45, 48, 52, 58; 
Mr. Pole, 85, 89; Mr. Williams, 157 to 
159, 164, 165, 168, 169, 174; Mr. Finlay- 
son, 192. 195; Mr. Neill, 255 to 258, 271, 
272. 281; Mr. Edwards, 306 to 308. 

Bank branch offices--Mr. Edwards. 50, 58, 
59, 62: Mr. Stavert, 71 to 7t; Mr. Neill, 
Centres, bank--Mr. Neill, 265. 
Directors, to--Report to House, xiv; Mr. 
Garland, cxcii: Mr. Pole, 87; Mr. Fin- 
layson. 190, 191. 
Limitation of--Mr. Coote, clviii, clxxviii, 
elx=xxix: Mr. Edwards. 50, 51; Mr. Pole, 
79 to 81, 137; Mr. Williams, 179, 182: 
Mr. Finlayson, 191, 193; Mr. Neill, 274: 
Mr. Edwards, 314, 315; Mr. Saunders, 
361, 362, 365 
leal Estate by banks--Mr. Pole, 81. 
Home Bank--xvii to xl, cxliii; Mr. Neill, 
284: Mr. Ross, 322, 323; Mr. Saunders, 
370 to 374, 380. 

Agricultural Credit in--Mr. Tory, cxii to 
cxv, 233, 236, 238, 243, 287, 288, 291, 292, 
294, 296, 298. 

Banks, United States--See under "Banks." 
Agricultural Credit in--Mr. Tory, cix, 233, 
238, 239, 287, 288, 297, 298.